Opportunities for Digital Transformation Capital with David Roux
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Enterprises are busy embracing the technologies that underpin industry four point of such as A I and automation. But now the fifth industrial revolution is coming. So what is IT? What could I mean for our jobs? I'm had a fry. You can learn more later in the pocket.

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radio this weekend on the podcast. Another extra special guest, David ruo, is chairman of babin, a fascinating private equity firm. They are not interested in simply flipping companies or buying firms and then quickly selling them.

What they do are much more involved than a consulting firm. They are experts at digital transformation, uh, across a wide variety of a sectors in in the investing world. And they essentially take companies as varied as tire manufacturer and industrial producers and retailers and find intelligent ways to use technology to make these companies more efficient, more productive, more profitable.

Um and they're not again, they're not just consult, they come in. They take a stake in a company. Um sometimes it's a minority stake, sometimes uh, it's a larger stake and they help affect this massive change.

A with great results that there are one of the few companies that specialized in this. Uh their track record has been very impressive and the approach they bring to transforming old industry companies is absolutely fascinating. Previous bay pine David was one of the confounders of silver lake um investors, a legendary firm from uh the nineties and two thousands with no further to do my conversation with bay pines David crew.

Thank you pleasure to be here.

Uh it's a pleasure to have you. I've been looking forward to this conversation for quite a while. Let's start out with your background.

Bachelor s from, however, masters and philosopher from cambridge, and then in N. B. A. From Harrison d business school. What was the career plan?

You know, I originally wanted to be an architect.

Really, I always wanted to pretend to be an architect. That's, that's an area fascination. Why did you not go into that space?

You know I grew up building go cards and tree houses the like um but I I think when I got to school I um found that I could make models, build software, may be create organisations. And that IT was as much fun as building a building.

There's a different sense of creating a company versus creating A, A, A certain type of space inhabitants by people. No, no doubt about that. So so let's talk about some of those companies that you build.

You begin at a few tech startups. You found the text, which eventually gets acquired by lotus. What was the starting process like this was mid nineteen eighties. That about right?

Yeah, early eighties. You know, in business school I realized this is the kind of early .

PC um boom.

And I realize from my academic work, you know there were word processors, there were spread ed sheet, but there was not very good database technology uh, for PC as they didn't have what the mini computers had on the main frames had. So I saw opportunity uh, create some software and also to be able to marry that up with a data um for people to use on their pcs um and that was the idea behind the text.

So detects gets acquired by lotus, who eventually require lotus.

Lotus is eventually acquired by IBM, by queensland. That was a relationship I managed. So I had a very good kind of ringside seat in all that. They were very interested in the company's sweet of primarily communications technologies, cc mail, a lotus notes um because the sort of networking boom had already started up and they saw a world where all of these pcs would be interconnected.

How did you end up at oracle?

I had made Larry ellison during my lowest days. I had done another company, which we so to romantic Larry contacted me and said, look, we've got a tiger by the tail. The businesses growing like crazy.

I think there might be some ma opportunities. We really don't have a corporate development function. Would you be interested to come here and build one that I would happen?

Oracle, especially in the eighties and nineties, became famous as a serial acquire of all sorts of pieces. Spin out a row lops. How long do you state oracle?

I wish they are all through the ninety l one hundred ninety nine, you know, was really a terrific experience, extremely rapid growth around the venture fund at all the investing of the baLance sheet. I also managed, started and managed the M A program. So yeah, was fantastic.

Yes, I can imagine oracle in the nineteen. So value right and hard of things, ground zero. And I got ta think oracle.

And Allison, like, I cut my teeth on them. In the nineties, he seemed to have been everywhere. Oracle was consistently ranked best company to work top ten fastest growing companies like oracle. I think people who just came into the market in the best ten, twenty years don't know what a powerhouse oracle was and still .

is yeah has a remarkable history you know a class of eighty six meaning that the same year as microsoft son apple. And so they've been added and doing a great job for a while. Uh you know, marriage often thought of as a very aggressive and astute business mind, but I don't think he gets enough credit for his technical chops.

If you look back, thank about IT. He has been fearless about betting the company on major new architecture. So you know, he made the original Better around relational database on everyone else, yet doing something else.

He then made a major bet on unix when I was a kind of obscure, no scientific Operating system. He then made a huge bet around, uh, enterprise applications, big, Better around client server. And then maybe the most courageous, but was in the midnight when netscape had got the first browsers out, the internet boom had started.

The great story came in one morning after a weekend. We all SAT down at our little executive committee. Colony is like I ve been thinking, think this internet thing is more important than most people understand.

I would like to change a hundred percent of what we're doing in development. I want to stop all of the client server work, and I want to replay form everything that we're doing on a web architecture. Three thousand engineers, dozen, hundreds of products affecting in our thousands and thousand thousands of customers. And he very casually said, and i'd like .

to do this by the end of the deck, sounds like that's a multiyear project.

He was, he take turn to the director of engineer I done by the end of the day, just ported over, just going to stop or not going to write. Another line of client was done. This is going to be the new architecture.

This is the future of computing. This is what our customers are going to want in two and three and five years time. So we need to start building IT now for IT to be ready then.

IT was really the thing. I mean, I mean, just a credibly guti bt, but a very good sense of his technical powers and the confidence that he had about the kind of what's coming next. Next part that .

sounds like oracle was quite experience at the end of the nineteen nineties. You go found. So ver lake, in one thousand nine, nine, nine, what LED to that your oracle you were like a fifteen year veteran at .

oracle about right? No not quite, but i'd done there a while um and IT was um you know a fantastic experience. I had a great job, really good relationship with the rest of the team. You know, my life thirties, i'd kind of come to realize that was almost going to be married business, right tly. So and that I was looking around and I I saw what I thought of as, uh, i've come to call IT in oids, which is acronis O I P S for an opportunity in plane site.

And I couldn't understand the following, but I couldn't understand why investors were pouring money into venture firms, pouring money into a growth equity and not doing anything to invest in technology using a private equity format didn't make sense to make that IT would be a good small company, that would be a good medium size company. And all the sudden that would not be an appropriate place for fiduciary capital. I didn't make sense.

And I I thought cash, that must be a huge opportunity. You know, we were right in the middle of the internet boom. So tech was you know front and center uh of the news um and yet there was none of the into traditional firms where there in fact they were actively avoiding IT you know was sort of not an appropriate place to invest that kind of capital.

Why was that was IT that people were just so distracted by the new hiltners by the dot comes in the internet.

What were the .

public markets there for larger companies if they needed capital?

No, no, I don't think that here's what I think this is what they told us. And I asked that exact question. The theory was this, you couldn't go right checks for hundreds of millions of dollars if you couldn't underwrite the technical innovation at the heart of these business models.

You didn't understand how the semiconductor work, if you didn't understand how the software was built. One, two, there was a theory that these businesses had volatile cash flows and therefore couldn't be leveraged, which was the, you know, the whole point of leverage buyout. And finally, that they were companies run by children, Young, Young folks.

I was in the business, and when I heard that, I said, you know, those guys is in new york, in the sky grapes and the guy in london and those people in munich, in tokyo, I don't think they really know what's going on on here. These are actually really good businesses. The cash flows are unbelievable.

Customer franchise are very, very durable. There's incredible organic growth here. Uh, this is a really big and attractive opportunity. I think someone's going to, you know, make a great return by building a business.

and you don't need to underwrite the entire underlying technology. You're really just talk think about that transition to whatever make those companies that much more attractive. Is that a fair assessment?

When you're doing what silver lake does and what IT was built to do, you are making a fundamental bat, a technology. It's like um when people buy technologies or interview an agreement with a company like an oral or a you're not buying what they're selling you today. You're buying the promise that they will continue delivering like buying a lot on a river.

You you're not buying the water on funding your house. You're buying the promise that the water will continue to flow. And so you do need have a point of view about how well positioned these companies are for the future.

You can found silver lake with this is this is some lineup gland hatches. Jim Davidson rock, dr. Magney, tell us about your silver .

light cofounded ers will look to reach enormously talented and capable in their own right. We all live near each other, knew each other professionally beforehand. Ah we talked extensively about this opportunity and agreed that IT was the next big thing. And I think that you know, looking back on IT, i've been very fortunate at silver lake and prior companies when I started something to do with the group people and that it's always been great to have folks from different backgrounds, different styles, different professional experience. You know, it's very complimentary and know it's not for everybody felt for me, it's it's the way I .

like to do business. They weren't at at oracle prior. How do we all know each other?

Glad I have been a college classmates, tennis partners, fly fishing bodies. He was previously a blackstone. Jim Davidson and I are both big sports fans and shared season tickets for the sharks.

And the warriors are so we would spend a lot of time together. He was running the h and q investment back. And then a Roger was my next storm neighbor and very good friends with jim. So um you know was a group of people already kind of knew each other head some personal relationships to build on and you came with a different shot of differences.

What was silver lake like in two thousand as the dotcoms all exploded?

Well, you know, was an interesting thing. I would jokingly tell people that we bought high, sold low and made a ton of money, and, you know, was a very chAllenging economic environment. The national act during that period fell eighty percent right over from the front front end of the fund to the back.

The fund itself, in in a very fundamental way, was set up as a counterpoint to the mania around the internet. And what we would tell people, pointless. We say, look, you're completely right to be excited about the technology sector is under invested.

It's underappreciated for its scale. It's under appreciated for its growth. It's underappreciated for the strategic value that IT plays in the economy.

But you're investing in the wrong companies at the wrong press. And I had a little chart that I would show them. So here's a thousand repressively, a thousand public public tech companies at that time.

These ten percent are which driving the entire valuation. They're rating at ten to twenty plus times revenue, not earnings of not earnings revenue. And I said, I can just tell you that is the wrong Price, not necessarily bad companies, but that's those the wrong crisis.

I said, but look at these other ninety percent. If you take the rest of the publicly traded technology companies, they're traded one times. Revenue is the same as the S. P. At the day of the day.

prety. Reasonable, moral.

very reasonable. And they grow twice as fast. So you have an opportunity to buy growth at half Price. You've got this situation, this sort of the fundamental insight at the heart of the server like value proposition is, is that technology, the entire tech sector was on sale even at a time when people thought I was super expensive because ten percent of the market was super expensive.

but most of IT was not. How much of what's been going on in the twenty, twenty years has been a focus on that same top ten percent of tech companies as being overly concentrated in wildly expensive? Do you think the same situation is starting to show up in the modern era there?

There are some parallels and also some important differences. The parallels are that there is a concentration of interest. The differences those companies are now huge businesses with gigg antic levels of profitable, unprecedented vell of profitability and growth rates that have never been achieved before by companies at that scale.

So that's the part that's really different, right? A lot of the things in internet time was highly speculative. The other thing that's different is that today, the companies with the most spectacular valuation levels are private.

People aren't wrong to say they are a winner. The the sort of the bed of courses, are they the only one? Right, right? And so you have to believe that there won't be successful competition. You know, I would only point out that forty percent of their sales go to four big vendors, right, each of whom has their own ship development program. And so i'm not saying they are going to build a Better chip, but they're definitely going to build a cheaper chip um and so they'll be some dampening for sure from that.

And you know i'm around long enough to remember when I looked like intel was impregnable, that they had a uh uh uh uh A A position in the echo system that nobody could touch. And now IT feels like there are also run well.

this comes back to the point that you raise earlier, which is if you're going to do tech investing, you need to have an opinion about the tech. It's not just that you can look at a series of financials and say they had a good quarter last quarter. They had good year of year numbers.

I like the three year trend and say, fine, you have to separately and right, the quality is the underlying architecture, what's going on in the industry and believe that they are going to be able to keep going. And so like if you like, got in video, let's talk about that. You can look at the financial today.

This is fantastic. Another doubling and troubling ling, and these are incredible number and growing. Bob ba, the way that you ve gotten their improvements has been to go beyond what has been possible in any other chip. The other chip manufacturer have gotten their productivity improvements around the physical geometry by making the chip smaller and smaller, small, down to ever smaller.

ever.

right? These guys have got have stolen a march on the rest of the industry with their GPU chips by doing other things. They've gotten probably two or two and a half times, which is a lot of improvement, but they're tucking about improvements of things that are kind of eight, ten, twelve, sixteen times productivity improvement.

So they're doing IT other ways. They're doing IT with algorithms. They're doing IT with uh, you know other approaches. And so you have to form an opinion as investor about what is the likelihood they can keep doing that, uh.

because it's been the key driver and keep doing that for the next three to five years, not just the next quarter.

bingo.

They say that the fifth industrial revolution is about human charity, about building technology to enhance our abilities and productivity. But previous revolutions haven't exactly been kind to ordinary workers. Can this one really be any different? Can we build a more utopian view of the future while respecting the forces of industry? I'm ha fry post of the exponential era.

And I got to sit down with an expert, nokia bell labs, to ask these questions. Find out their answer, a bb t 点 com。 Forward the lash. Nokia.

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So let's talk a little bit about silver lake and how that eventually leads to bay pine. IT feels like, and I don't know if my my memory is correct, civil lake was one of the first bio shops built around making technology investment or investment technology companies. Is affair description server?

Other deals had been done, but they were occasional. They weren't the central focus for for anyone.

Tell us some of your memorable investments.

Well, I think some of the investments that the firm is best known for out of the box first was c gate in factor IT was at the time the number one serve disrupts. They had the best technology, great management team, very complex, but finally crafted extended supply chain through asia. And well, street hated IT was hardware in the age of the internet.

So the other thing that traded really, really hot back then was any new telecomm right article, this telecomm. That one of the insights that we had as a group in IT IT stamped from the fact that we were not finance people, but industry people with Operating backgrounds, is we understood that the entire tech industry is an ecosystem, right? IT Operates like your body, right? All the part sort of need to fit together, and they Operate into a dependently.

And so everybody at that time was talking about the information superhighway, and they were buying the highway, right? They are buying the telecom companies, and they were buying all these new applications that you could do on the internet, but people forgot that you couldn't have an information. Super highway without parking lunch.

Another, where is the electron? The bit had to start somewhere, and I needed to end somewhere. So if you believed that broadband was going to explode, then you must also believe that storage is going to explode.

And so we were able to look at that kind of systemic around the architecture and say, you know, the comes piece is over Price. I don't we should pay ten and fifteen times for a pipe when we can pay six times eba ebata earnings for the number one storage company in the world. Now there was a bunch of complications around things they owned and you know was a public company. So was leverage buy out all the rest of that. But that was really the fundamental insight.

So IT sounds like a lot of the public market investors had a fundamental misunderstanding about the entire tech sector, the ecosystem as you described IT. What are the things did people just not get, not understand, overlook um obvious investments in plain site?

Yeah well I think in that in that case, IT was a hangover from the very real war of attrition that for the prior twenty years had proceeded that moment in time where the industry went from one hundred and twenty describe companies to sex or .

an idea who were the winners.

We're going to be well. And so the question was, is there going to be more or blood the water? Or have we arrived at an industry structure where everybody is going to do OK and the number one players probably going to do Better than most? That was one.

The second issue was, could anyone figure out a way to uh, at the time, c gate owned some shares and other software companies and IT wasn't clear to the market how they could sell those an attack efficient way. And that's one of the things that with structuring were able to figure out arguing everyone where we bought a vo unit packet ds semiconductor division in this thi frame. The early two thousands IT was very much the fashion to be out of semi.

Semi were out of fashion, right? The world was saturated with the other end of the stack, not the, you know, I didn't want to hear people didn't want to hear about sammis. They didn't want to hear about sub assemblies.

They didn't want to hear about components. They didn't want to hear about computers. They wanted to hear about all the sexy, high margin, no cost of goods, no capital, equipment, software, services, internet application sounded wonderful.

This is the age of pet start com thing. And IT wasn't wrong to say that soft was good, but automatically follow that hardware bad. And so people had this idea almost like a dialectic, which is that you couldn't believe in something that you like, that the other must be bad.

And so semis were completely out of fashion. Women spend theirs off. H, P, span theirs off. IBM. Either closed or spend theirs off. You know, just they are all these people who who had very significant capabilities and fabs that today would be worth fortunes.

Leave aside the intellectual property and the skills sets and the trained labor force, you know, john, you know, off all one, off the back of the truck. So we bought us from H, P, hired a great manager, c your name hackton, and built the shop into a kind of highly specialized others we didn't buy with the idea where to go compete with intel and to dislodge them from the P. C.

Market, but rather with the idea that everything was gna have a processor, cars, kids toys, a to your kitchen appliances and that somebody was gonna to make all those processors in that. So there was an exploding rest of market opportunity that intel wasn't focused on that people like a vago could be today. I think animal bills .

with the second biggest consumer of semiconductors on of that still true. That was true a few years ago.

I I think that right. In fact, the the the the stati often quote for people, this is that the semiconductor content in a car is more valuable than all of the metal, than the all the steel and all the aluminum. And maybe more importantly, IT is increasingly the case that what the semicon doctor enable, the navigation, the uses .

that really give .

a car kind of its identity, are increasingly dominated by the digital capabilities.

What what about the rest of the world outside of pcs and automobile? Iles IT was incredibly for looking to say, in the early two thousands, by the way, they going to be chips and everything, not just dishwashers and refrigerators, but toys and and electric bikes. And you name IT, it's gonna need a chip that was a decade ahead of its time.

You would have been very a amused when we raised our first fund. You may remember the first beat, all sure, of course, which was a .

hot product.

You couldn't get IT kids product, little very thing. And IT in IT, a digital signal processing chip, they would allowed IT to make a little noise. I noises, you whele its legs.

And I used to bring IT with me to all of our fundraising meetings. I wouldn't say word about. I simply take IT out of my briefcase, and I would put IT on the desk between myself and the prospective investor.

I won't say word about IT, you know, i'd launched into my talk about semiconductors and hardware and the evolution of the sector and software. And finally, sometimes five minutes, sometimes ten, but that was never more than thirty minutes, right? The investor would say, David, what is that all? why? Why do you have that all? There I go.

I'm so sorry. I forgot to mention IT. That's a verbi doll. And I brought that for you because I wanted to illustrate in a simple way how the march of technology is going to go. I said that far bii doll has more processing power than the lunar land.

I knew you gona go that way.

And I said, we're looking in a world where all of music is gna be digital, all of film is gonna digital, television is gonna digital. The way you do your phone is gna be digital, as said. So all of these analogue things, as they become more digital, need this technology.

And if you understand how the technology works, you will not because you're kind of a big brand genius, but because you've played the game before you understand what all the pieces do, you'll be in a really good position to identify those opportunities going forward. I'll give you another good example, the part that a little wrinkle that I think gave us a lot of credibility and by the way, gives us credibility now is to say, let's on the right technology, put IT in the right companies and the key parties at the right Price. IT is bringing an investment sensibility and financial discipline to the work that we do, right? We're not like technology sallets.

And I want to just own IT to own IT, right? It's not surprise. It's not a trophy.

And you know, would this be useful and would somebody else be interested? I'll give another example. Ebay came out of the blocks super hot. They bought paypal and then they bought this thing called sky. And skype was the first soft were based peer to peer video conference capability.

So long before zone, twenty thirty million people on at the same time, which was an amazing technical feet, wasn't exactly hear what i'd had to do with options, even less clear what i'd had to do with paypal. But ebay bought sky and IT kind of noodle along in the skype portfolio in the early two thousands for a year, two years, no one paid any attention to IT at all. We said, my gosh, look, they've had three, six years.

In two years, they spread out all over the place. They have been upgraded the product in two years. Maybe they'd be willing to sell IT. Contact them once. Contact them twice.

Eventually they said, yeah, would we want to talk you about that? Because we had a point of view about this is a really exciting market, but no one's pay any attention. So if we could carve that out, we we want to event keep as much of this as one.

We'll buy the rest of that a full valuation, which we did. And IT was a business that had nice growth despite really being a fairly child, right? And we should look get paid twice.

We'll pay you once what it's worth, and we're going to make this way more valuable than you possibly could because we can focus on that and make a bunch of changes. And IT was IT was sort of a troubled was complicated as we are going. There are so much staying litigation.

They had upgraded IT for a long time. Uh, apple had just announced that they were going to be offering a you know via e. So there was you know microsoft said they wanted to be in the business. So there was a lot of competition, competition from very credible large uh.

players. And if I recall correctly, around that time, all of the fat pipes and broadband with that had come public in the late nineteen early two thousands. We're coming back up around pennies on the dollar. I recall global crossing, a mental etive fiber and all these companies. So the band wifi was coming online at a cheap Price that didn't exist that way in the nineties, which is very much right into the sweet .

pot of skype yeah the way not just similar from the AI protection crunched that we have today, where people are pouring a huge amount of super expensive stuff what you do need, but which will be available three years and five years and ten years from now. Much deep, really, really different pricing.

You and buying them, if I recalled correctly, uh, not much long after that, did microsoft come along and and scoop .

up for me um well, what happened this is that we bought IT, completely, upgraded the software, changed out the entire management team, developed a series of partnerships, built a business side of because IT had been very much kind of be to see phenomenon, trying to really opened up a product line around be thing. And IT ended up being very attractive four microsoft. So to them, you know one of the foundation elements in what is teams today and really help them, I think that was great was turned out to be a good deal for solo lag. But that also, I think as all deal should be a very good deal for the .

requires any other any other memorable civil .

like deals we're often times you know um I think the maybe two others that we uh are well known for um with the largest investor in n alibaba before really before I went public and that was you know .

explosive that .

was was explosive but that was a scary investment as minority investment in a chinese e commerce company. You located on the other side of the world, whose also .

your coal co investor is the people's republic of china.

right they own a ultimate regulator right for .

sure um .

owner slash regulator and you massan and soft karadi large investors but we'd liked the management team. We love the story. And that turned out to be, you know, very good. That was a very, very good investment. And then the the last one and really still very much in in the news was dell, big well known public company.

Uh, you know, pony ously name for its C E, who had laughed kind of like, you know, Charles shells left, came back first went private, where Michael world fat essentially all of his uh, ownership into IT. I made a very large personal bat. So was a guti bat because IT was at a time, again, this is a place where the conventional wisdom was the P.

C. Was going awake. We were going to use our phones.

We're going to use ipad somehow, right? Was gonna away. We didn't think I was gonna away. And we thought that the market hadn't really appreciated how much work Michael had done building up a store of intellectual property around next generation computing, whether it's, uh, cyber, a cloud computing and you maybe it's like maybe a basketball franchise that has a bunch of draft picks. You know, I was saying Young talent, which we thought was gonna very valuable, because we had a point of view about the importance of class, we had a point of view about the importance of cyber. And we thought that those assets were undervalued because the whole of the company was getting valued like IT was a commodity PC vender.

They say that the fifth industrial revolution is about humans and ity, about building technology to enhance our abilities and productivity. But previous revolutions haven't exactly been kind to ordinary workers.

Can this one really be any different? Can we build a more utopian view of the future while respecting the forces of industry? I'm hana fy post of the exponential era, and I got to sit down with an expert at nokia bell labs to ask these questions. Find out the answer, a bbb 点 com for the national。

What could you do if your data was working for you and not against you? With bloomberg delivering enterprise data directly to your systems, you get easy access to the details you want, optimized for higher level analysis and financial data experts committed to helping new maximized your every move. Our data is made for more, so you can show the world with your made to visit bloomberg dot com slash enterprise data to learn more.

So let's talk about what did you do post silver lake in the in the twenty ten?

I'm a starter in a builder. I like backing social entrepreneur s and feel particularly passionate about conservation, biomedical research and education. We took our foundation resources and focused at first on a thing out, and seattle called the institute for health metric and evaluation stood that up.

Uh, bill gates, blessed is doing most of the support now, but that's now you know five hundred researchers and they focus on understanding in detail the global burden of disease, uh, so that we know how healthy or so you know every country is and you know we're to allocate our health care dollars on the biomedical research side. Became very active as the chairman of Jackson laboratories, one of the largest independent institutes in the country, focused on kind of the genetic causes of rare diseases, were able to double the size that the group of that enduring. And then more recently, in the education space, I had this view that we were not appreciating how big artificial entire was gonna.

And that as a consequence, as a nation, we are on invested in advances, computer science now that we've got programs and, you know, all the best universities, but they graduating hundreds of people, tens of thousands, or maybe even hundreds of thousands that we need really yeah because what happened is, is that the academics are focused on building the new platform, the so called large language model, right? When think about that, like it's a you know nuclear power plant, you know, complicated high science. But we now and now works and it'll work a little Better.

They'll keep refining and over. But IT works. And that what we need next, our application engineers, we need electricians, we need people to design appliances, we need to run wires, we need to change from steam to electricity.

And we don't have those people. And so we already know what we need. It's going to by the way, there will be twenty or thirty years of implementation ahead of us. So this will be great jobs for a lot of people. So we've built the first school. We spent, you know a few years getting that organised, opened IT in twenty uh, when now I get four years in, got a thousand students, two hundred corporate partners and started or accelerated ninety four companies, four hundred jobs. You know, really exciting.

You're doing this for a couple of years. You're standing up. I'm happy .

as a climb, right? Making things. I'm helping people.

right? You're running the true family foundation, the true institute. You're basically .

I was not looking to start a new business, much less an investment firm, right? What happened is, is that my very good friend, engine mukerji, we were talking about the future private equity during that conversation. We saying, you know this next generation of private that needs to do something different if we want to continue producing the super abNormal levels of profit that we've seen from the asset class.

Um because there's more competition, Prices are higher credits more difficult. Um you're not you can account a multiple expansion. So you're gonna to make the business you buy Better during the tendency of your ownership.

There's only so much procurement improvements available, you can only upgrade management. So far. My observation was this, which is is that I said, you know, this texting is only ten percent of the economy. When you take all of gd, we take all of sammis, all of computing, all of networking, all of software, all of social media is ten percent of GDP. I said, what's going on right now is the other ninety percent of the economy is being digitalized, huge opportunity.

Now big difference is, is that now the nature of technology is, is that it's the only capital good that really kind of decreases in Price and makes itself smaller, right? So you think about what's the difference from now and twenty years ago. Now the technology is much smaller, is much more ubiquitous, us is much less expensive, and it's much easier to use.

All of those things mean it's going to go everywhere. So we're talking about this. We're getting ourselves lathered up about the fact that all of these analogue companies, industrial firms, consumer firms, health care firms, services companies, they all need to adopt more technology, but none of them know how opportunity in plain site is that obvious that they're going to do this, right?

You think about the companies that you know in those kind of sectors that are doing well are almost always those that have adopted the technology here, right? You know jp a Morgan and finance or roller and retail, you know those companies that get there early get a big leg up on their analogue competitors. We said we could do. We could build an investment firm that none of you could write a check, but could be your technology partner in helping you architect a business model future that would allow you to grow your company faster, perform Better, you know, produce more profits, know.

and dry value. So let me push back against one thing you said just a little bit, please. This opportunity. Plain sight. Yeah, if IT was really in such plain sight, everybody would be doing IT. But instead, IT takes a couple of guys with a lot of technology experience, a lot of Operational experience and financial experience to make this real. I yes.

partially agree. Okay, all right. Here's the partial part. The partial part is is the I think the opportunity is easy to say, I think the execution is hard, is the the the often times say IT is, is that it's easy to describe. It's just really hard to do.

And it's hard to do because you need to understand the technology itself, you need to other vendors, you need to be able to set priorities, you need to have a realistic sense of time, and you need to know how to weave this new technology into the processes that are already exist. It's not like these companies have no tech. Everyone, any company of any scale has an erp system.

They have a bunch of database, there's compliance issues. There's you know cyber. There's there are all kinds of things so that you have to integrate into watch already there.

So when I think of private equity, at least from the nineties, two thousands, even the twenty tens, I think of them as a form of financial engineering to unlock value. What you're really describing is digital transformation capital to steal a race from your website. So this inside is, hey, we don't need to just do financial engineering. If we could get these companies to adapt the latest, greatest taken away that useful and productive, we can really unlock a lot of value. Is that what LED to bay pine getting launched than you kind of coming out of retirement to to try IT again?

Yes, I know that was sort of engine calling for the lefty from the bulk.

right? right? Let's get the lefty. So so let's started innocent tly .

enough where IT was really A A conversation between two friends with a lot of mutual export, you know, respect, where we had a similar you know fifteen, twenty year runs in private equity. So we were very current, highly topical understanding of what was going on. And we realized that we could take.

And put in one place, really it's like a binary weapon ran where A. Mug qualia, world class private equity firm with fabulous diligence, great structuring, really sad for modeling, uh, you know, great financial, a engineering, we don't want to throw that away. Valuable lessons, but combined IT with the Operating power to insight in extended personal network of relationships that would allow us to do things for and on behalf of our portfolio companies that simply wouldn't be possible, practical or maybe even imagined.

uh, by your competitors IT IT. Sounds like your competitors are the consulting firms who come in and you know kind of see goal and events. They come in, they eat everything, they grap all everything. They fly away as opposed to you guys not only coming in with technology expertise, Operational expertise, but capital writing a check that's a very different relationship than paying a consultation.

Yeah, you know it's interesting. The consultants actually play a very important role. I wouldn't want to diminish IT. Okay um around awareness building and.

When we go into talk to a management team, they almost always have had a consulting encounter, right, right? And they'll have a stack of powerpoint slides, which they'll kind of run to their office to show us that says the consultant told me there are sixteen things that I can do, uh, with technologic, but I don't know which one I should do, right? I don't know what I should do first.

I don't know who should do IT for me. I don't know how much should should cost not going to take. I don't know how to integrate or thought i've already got, and I particularly don't know what to do if anything goes wrong, right? And so it's the egos back to the implementation part.

And so what we d like to see is a management team that has self awareness and enthusiasm, but are not themselves technically fluent, where, you know, we can bring that to the party in a way that can be catholic, for the management team to give them confidence because they have a willingness to act. They're just not sure what to do and they don't want to do how they will not do something harmful. Um and so having somebody who's done that before, then there you know is is super useful.

So so let's talk about some of your portfolio companies and how there engaging in in digital transformation. We we're talking about A I earlier. How are you guys looking at A I to facilties taking some existing companies and making them more productive?

Yeah well, first thing, we could spend a whole session uh, on A I, but um here's what I would save first. We believe IT is actually despite all the height and not withstanding all the attention is already received bigger than most people think.

Yeah I I am with you on that. I you i'll give you a funny example, please. So i'm in the midst of putting together a man, you script and the publisher. They're not keen on doing an index takes a couple of month. You paying a person all this time to look up every name, everything, every that for a couple hundred box. There's an A I P D F indexes or that will identify every proper name in four hundred pages and creating index relative to and i'm just imagining reproducing that sort of dum mechanical work over and over and over again. And I know i'm just scratching the surface here.

Sorry, I created is a great a example. I think that right now most people's experience of A I maybe as a chatbot right now ChatGPT or you know .

or any any go to any car company, uh, you get that pop and you know that's not a life person until the money.

What are we say is just imagine all the best A I current ones today and by the way, the ones that you're seeing today are the worst that you will ever right.

a little Better.

everyday worse, you will ever say they, they read, they write, they hear, they say they can compose poetry in music in any genre, photo, realistic images, they can create video. All of this today, right? right? This is all available today.

They also write computer code as well, Better than most a programmers. They can do complex mathematics. They can solve puzzles, they can play games, they can run factories, they can drive cars. IT is really hard to over estimate what's possible and we are standing really for the first time after decades of discussion about IT on a um you know on the brink of real White color, dramatic White color productivity against really dramatic best example that I would use for you to give you a framework for IT is, is that you're going to see a lot of A I show up as features in products that you are use like you know all your apple products, right? We'll have IT soon.

The first thing you get with this probably a product that will be agents, you know something that works with you like a partner, like a writing partner that you would use, right? You know think about a more advanced sion of what you were just describing, right? The best thing out there right now to illustrate that is a product called copilot from microsoft which works with um a software engineer. You haven't running on your machine and it's basically a programming buddy that will help you right code suggest different options, you help you deep a track bar, blah blah and IT typically improves productivity twenty five to fifty percent out of the box.

and then just.

and can be up to one hundred percent, right? IT all by itself has dampen the demand for computer programmer really, because it's made the ones that we have so much about you.

you've doubled the effective productivity.

keep up to. But think about IT as a very giant, right you know if you had five maybe you need for if you know right is just a really significant um improvement which makes IT practical to imagine that you're going to be able to do this in law firms and accounting firms and consulting firms where you take your average employee and make him as good as your best so .

let's take an old economy company that's not traditionally tech orient, right? Um you guys uh own Mavis tire express services. yeah. How does the consumer service business like that get digitally transformed?

How he walks into our office? And said, I know everything in the world about tires. I know where to buy. Am now a storm not to put him on, not how to rotate them and how to baLance them and not how to align.

Nothing that I know everything about, that I know only about technology, but I have a very strong opinion that technology could help my business. I just don't know where to start. I've got he attacked a bunch, Constance. He had lots and lots of ideas.

And there are hundreds of these navy stores, right? Thousand.

three thousand five stores when we first started chatting three years ago. Um so what you know it's a good size it's a good size business, uh, very well run, nice growth profit tables. So wasn't britain that not a business is broken, but a business where the management team had a felt need around um the opportunity to make IT Better and really steal a march on their competitors.

And so what we did to sit down with them and say, like here are six different use cases that you know you might want to think about, here's A A way around, you know, digital marketing. Here's a Better customer experience. Here's what you can do run inventory management.

Here's a labor productivity, uh, and capacity utilization planning. Here's dynamic pricing. And we went through an entire kind of you know brainstorming session around that, produced a whole plan. So you know usually when you do A A new investment, you'll do underwriting when we do a Normal financial and and like everyone else, what's different is we also do, in addition, a separate digital under writing where we talk with the management team to create, you know a technology road map for the enterprise that integrates with their business model and extends IT to create performance improvements.

And what we did with them SAT time, we got Better digital marketing so that the search engines optimized for peer calling and writing and I have a flat tire and i'm in poky. Then here's where you go improve the customer experience. So you know you know when to bring your car in limit, eight times accurate estimates of how long IT is gonna take what is going to cost, what your options are dramatically improve kind of labor um utilization in the shops, capacity utilization got the pricing right so that we manage margins and customer expectations appropriately.

All of that at some of we could get done in two days or two weeks, but some of those things has taken us two years to put up. The end result though is, is that the business is now more than twice as big, roughly twice as for football um and that's not all due to the digital, but the digital is very fundamentally enabling of that growth. As you might imagine, if you're opening new stories is .

a light issue to do if you do the same thing in every single store yard. I density policy in outdoor furniture. How can technology improve that?

Um you know it's an interesting business. Um it's a special team manufacturing company. That builds kind of very high quality, feels like wood, uh, outdoor furniture, very durable, colorful, but doesn't chip.

doesn't fit, doesn't need to be painted.

doesn't need to be painted, don't have to take IT inter in the winter any of those things. So that sort of the fundamental value proposition of the thing. But here's the difference, which is, is that we said, look, you ga ys are manufacturing guys, people built and they're really good at because they use recycle plastic so incredibly sustainable.

They draw the holes, they do the trimmed, they just take the plastic waste, put IT back on the top. So it's a zero waste, highly sustainable, fantastic story. During covet, they grew their online business a lot.

They're not marketing people, right right? So we're able to show them how to um significantly improve yield on their online uh, the commerce side of the business. Able and able to do that, by the way, very quickly, almost instantly around that. Able to to see how to get to new adjacent market areas based on finding more people like the ones who are you already buying once you identify a .

customer you want to be able to identify.

you identify them electronically, then it's a one easier to fine that electronic .

signature .

similar people and go look for IT online rather than waiting for people to find you. The other thing that we're doing there is, is that we have highly automated uh, manufacturing and so that we can we can take the manufacturing.

And instead of manufacturing twenty years, two hundred chairs, putting him in a warehouse, sending him to a distribution center store and hoping somebody buys them, we can instead take an order, build the chair, senator. So it's not just just in time, but it's real time that creates pull. So that dramatic improvements in efficiency, but that also makes IT hard, easier to do custom things, improve turnaround time, you get your furniture much faster. Those of you good examples really.

really .

interesting. They say that the fifth industrial revolution is about humans and about building technology to enhance our abilities and productivity. But previous revolutions haven't exactly been kind to ordinary workers.

Can this one really be any different? Can we build a more utopian view of the future while respecting the forces of industry? I'm ha fry post of the exponential era. And I got to sit down with an expert at nokia bell labs to ask these questions, find out their answers. A B bet 点 com， forward dash nokia.

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I only have you for a few more minutes. So before I get to my favorite questions, let me just ask you one last question. We talked about the ruo family foundation and institute briefly. Tell us a little bit about what you focus on with the room family foundation.

What we like to do is find social entrepreneurs um folks who are um looking to make scale impact in education, particular educational access, conservation, you know kind of environmental thanks, biomedical research and that a particular focus of mine is around helping uh support veterans and their family.

Really good stuff. Alright, so this will be our speed round. I have about four minutes, five minutes to get through five questions.

Let's just do this quickly. Um what's keeping you entertain these days? What are you watching or listening .

to um right now my wife and eyes watching the lines in the diplomat.

We're about hair boy through the diplomats .

or no spoilers ah season too good um we've loved a the crown and I am waiting anxiously for season two of wolf hall the hundred, the eight and Thomas chromo story in podcast land my a current favorite is fall of civilizations by power. Cooper.

interesting. Tell us about your mentors who helped to shape your career.

You know i've had a couple have been very fortunate um early guys again in checked lovers, a newspaper guy who ended up running uh cocks enterprises, the media company. He he funded my h cox funded my first company.

He was a newspaper gun and the key lesson from ham was look ahead to put out a product every deck and so just getting in the habit of putting one foot in front of the other, making a little bit of progress every day and just keep done, uh, was really valuable. The other guy who was great for me was doctor Frank king. When I learned from Frank, um he was the head of engineering at block s and had a similar job at IBM. Before that what I learned from him was that the people were more important than the products and that building your organisation primacy of people are particularly always being you always recruiting, being kind of on the power all the time, uh, was super valuable. Let's talk about books.

What are some of your favorites and what are you reading current?

I I am a mark help fan. I love paris in the present tense. I like done windsor city on fire as one of my favorite books first an atrocity gy with city desire and city of city in ruins like anything by a Dennis lehan anything Billy with drought um and i'm currently just finished the magician by a deval just reading the hair with embarras also by admin. Val.

interesting. Uh our final two questions. What sort of advice would you give a recent college grad interested in a career in either private equity or technology?

You know, I always told him the same thing. I always to do something else first and I say that because i'm a great believer in domain expertise um and so I usually councel Younger folks coming out of school to go learn an industry and or learn a craft, learn a skill you know be good at marketing, be good at sales um you know be good at finance picks something where you're really good at IT because IT gives you A A cash and a standing um that you don't otherwise have her.

And our final question, what do you know about the world of private equity investing today? That might have been helpful back in nineteen ninety .

nine when you were first standing up silver like I wish I knew how important IT was to be first really um I was interesting I think is an Operating person. I I probably intuited IT and understood IT because I I kind of sound around me advantages that are crew to a you know a category leader. You just don't need to be as good you know think about um think about an musk. You know his first electric car was a bundle of borrowed parts and components IT barely .

worked IT was usually expensive .

to with the battery together, cost of fortune, incredibly uncomfortable to drive, totally unreliable.

Um got to start somewhere.

But he was able to do that for years and years and years and learn and learn and develop you know an expertise and some skills same things true for um if you think about a jeff bassus right selling books that no one wanted right losing money hand over first for a decade um but building infrastructure, building experience, learning lessons, you know creating a team that became the basis for, you know both of those things didn't work until they did. And boy, when they worked, they really work great.

They really worked. Thank you, David, for being so generous with your time. We have been speaking with David role. He is the executive chairman of baby private equity firm focused on digital transformation.

If you enjoy this conversation, will check out any of the five hundred plus discussions we've had over the past ten years. You can find those at itunes, spotify, youtube, bloomberg wherever you find your favorite podcast, and check out my new podcast at the money. Short discussions with experts on specific topics involving your money earning IT, spending IT and most importantly, investing IT at the money wherever you find your favorite podcast.

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