Strategic M&A at Scale: Insight Partners' Buyer-Led Approach with Byron Lichtenstein

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The buyer led M&A summit is back October 30, hosting over 1,000 corporate development, private equity, everybody on the buy side. You'll hear from the best in M and A from companies like Quadient, SBS, Commerce, iSalt, State Street. These are all leaders who have built repeatable, scalable MA strategies. You're going to learn how to prioritize deals, execute diligence under pressure, and bring integration all the way to the front of your deal process so you can realize synergies faster. Did I mention we're going to do a live M and A Science podcast with Keith Crawford, the head of Corp Dev at State Street Capital. Whether you're new to the industry or a serial acquirer, this is an event.

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Check it out yourself@eelroom.net summit or look for a link in the descriptions. I'm Kisam Patel and you're listening to M and A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during MA deals.

Hello and welcome to the M and A Science Podcast. This podcast is part of a mission to rethink how M and A is done. The old school cell LED approach is dead. Buyer led M&A is all about strategy, alignment and efficiency, putting value creation at the center of every deal. And let's be real, it's not just about closing the deal, it's about making it successful. We uncover what truly works at M and A by learning directly from the best. I'm your host Kisam Patel, Founder and CEO of Deal Room and Chief Scientist at M and A Science.

Joining me today is Byron Lichtenstein, Managing.

Director at Insight Partners. A leading global software investor, Byron helped shape M and a strategy across Insight's.

500 plus portfolio companies, bringing a rare.

Blend of operational Insight, venture speed and private equity rigor. In this episode we're going to dig into how Insight executes buyer led m and a at scale supporting CEOs from sourcing through diligence, integration and everything in between. Byron, how you doing?

I'm good. I'm. I appreciate you making the time. I'm excited to be on the podcast. I was listening to a few this morning over the last few weeks. Love what you're bringing here. I love the Biolet M&A angle. Could not agree more with you that you need a good strategy and some good execution to get it done.

Thank you for taking time from do it deals to have this conversation here. We're Inside Partners headquarters in New York City.

I appreciate you coming in.

Oh absolutely. Thanks for making it happen. Can we kick things off a little bit about your background?

Brian Lichtenstein I'm a partner here at Insight. Been here just over 10 years. I run our diligence and growth strategy team. You can think of that essentially as two parts. One is helping our team run as fast as it can, but make sure that we are as excellent as possible on the diligence and underwriting side. And then ultimately when we get a deal done, really thinking through what is the growth strategy for that business and how do we manage their portfolio. As you mentioned in the intro, we have over 500 portfolio companies. We have a lot of resources internally and our job is make sure that all those companies are successful and that we're putting the right resourcing against the right company at the right time. A lot of my job and my team's job is figuring out what are the strategies for those businesses, working obviously with our founders and our management teams, but then figuring out where can we deploy all of our heft and our scale to actually making them grow even faster, making them even more profitable. We've built a pretty cool team here and excited to go into it.

You've been on Insight for a while.

Yes, it's been a journey. When I joined, the firm was about 70 people back in 2015. Now we'll be just over 400. My team specifically was about six people. Now we'll be about 50. We've built a lot of components as I look at the structure of the team today, especially on the value add side. So our Insight on site team is our value add team and that group is 120 people today, which is amazing. Came from the six of us originally to 120 today, of which I have about 50. But you also look on the other side of the team and there's former CROs, former CTOs, former CMOs, heads of talent. And our job is as insight onsite to bring all of insight's heft, all of the data, all the experience, all the access to our portfolio. So it's been a wild ride. I mean I joined, we're on our ninth fund, about four and a half billion. We're on our 13th fund, about 12 billion today across multiple strategies. Really enjoyed the ride, been extremely grateful and fortunate.

I was going to get it at that. The firm, I think total AUM is.

100 right close to it, we're about 80 today. We do everything Series A through Take Private. For us, the biggest thing is being flexible and really understanding software.

The point I was trying to make is you're not cutting small checks. There's an interesting variation because even at 12 billion sizes, you're making quite a few bets out of that size of a fund.

Totally our strategy, you can reverse the clock back to 2015, 2016. And as the fund started to scale most funds and where our LPs get worried that we would go is most funds, they start to change strategy. They say we're going to do bigger deals, we're going to go later stage. And for us, we've always done buyouts, we've always done series A. And Jeff Horing, our founder, got up in front of all of our LPs at our annual meeting and said, we're going to do the same companies, we're just going to do more of them and we're going to double down into the ones that really, really work for us. We want to play at all those stages. We believe that having a comprehensive view of the entire software market is meaningful overall. What enables us to do is every market, whether it's M and A software or legal tech or healthcare it, there are going to be winners and sometimes those winners are going to be later stage. And that's where we want to play. And sometimes those winners are going to be the next generation of AI driven businesses today within different verticals. Sometimes we want to play that end of the market. We try and take this really fundamental approach of saying, look at the market. What are the dynamics and what is the right stage of company to play this market. What we care about is five, ten years from now who's going to be the biggest Leading business in that category. And sometimes that's going to still be the incumbents and other times that's going to be the business that got created last year. So we want to be able to see all of that and play the market right.

Playing smart as a strategy.

Trying to playing smart but also being flexible. If you are a fund who has a very tight mandate around, this is the exact vertical. And I'm only going to do companies and I'm exaggerating. I'm only going to do companies between 20 and 30 million of revenue. That box gets really, really tight.

Exactly. I've seen it. I've seen you guys do a lot of interesting things. These crazy carve out deals. And what is something if you look at early in your career to now, there's like your views completely flipped around in M and A. M and A.

Specifically I started in 2015 and I would say at that time in the market, it was early stages of this idea of called software roll ups. There were a few early wins of folks who essentially said, all right, there's a dislocation in the market. The PE guys won't buy anything that's under 50 million of revenue. There's all these businesses out there that are 5, 10 million of revenue growing 30%. So if I take five $10 million companies that are growing 30% and I smush them together through M and A, I now have a $50 million company growing 30%. There were some early rewards there. If you fast forward to where we are today, the buyers have become much more sophisticated. Both PE and strategic customers have also become more sophisticated. They are looking for really strong product and they are willing to switch for really strong product. Ultimately, we still deploy M and A as a strategy meaningfully, but I think that we become more nuanced in the way that we approach it. We want really strong anchor products. And then yes, you can add on through M and A and do smaller rollups, you can do consolidation, you can do market expansion, you can do new products. But ultimately where we're seeing software companies get rewarded is by maintaining product edge, not just having all the boxes ticked across. Whatever product architecture you want to create. That's been the biggest change in the market that I've seen. You still want to be on the aggressive side of thoughtful, but you want to be as thoughtful as you can be with M and A.

Strategy matters.

Strategy matters a ton. It matters a ton. Where you have to set that early, you have to actually have a vision. There are some examples. We partner with a lot of Other firms. We partner with a lot of other PE firms and venture firms and we're always trying to learn. As I look at Insight, we have our core values and one of the core values is commitment to reinvention. It's like we're always trying to ingest as much information from other sponsors and we work with a few others on some of our larger buyout platforms. I would say there are others who are a little bit more aggressive. There have been some really amazing get Luckies where, oh, this product kind of fits and it actually took off really well. It's not to say that it doesn't work, but I do think if you can do the mapping of where you want to be in five years, and that includes where you want to be on the product and, and you can be pretty strict around that, you should be aggressive about pursuing that roadmap and try and stay laser focused on it. And you set that strategy early and you go for it.

And what do you end up doing when you do that? You end up, hey, we're really gonna focus on bridging product feature gaps. We're really gonna focus on just serving this core customer base and trying to buy companies that have that same customer base versus the next shiny thing or this. It's away from the core, but we'll make it work.

The goal is to create a team that knows what you're aiming at, a management team and an investor group that knows exactly what you're aiming at. I take a business like NMI Payments Infrastructure business. We bought a stake from Francisco Partners about four years ago. At this point, amazing business. You're talking 250 billion of payments volume going through that platform every year. But when we bought it, most of the revenue was on its core gateway product. And our thesis was from the get go and we're very aligned with Francisco on it was we have about a million customers. We have that 250 billion moving through the platform. And it's just going through this one product, this one gateway product. We need to be able to expand the product suite that we're selling into our customers. So our core customers are ISO, so independent sales organizations and that's people who sell payments to other merchants. We said we want to be the arms dealer to them. Today we sell them a gateway. There's so much else we could go sell them. We had this core product vision. Here are the products that we're going to add on to that business. And within six months we started to add. But as you can imagine to the focus point, there Are so many payments businesses out there. If we wanted to just do 30, 40, 50 deals, we could probably go do 30, 40, 50 deals with this as the main anchor. Kate Hampton, who's the head of strategy and Corp Dev over at nmi she's kept everybody super disciplined of we still look at the deal flow and we can and we'll talk a little bit about the sourcing engine for our insight. But like we still send her a lot of deal flow but like she probably ignores or says no to 98% of the things we send her.

Wow. Having this five year vision, I think there's this element of the central distribution which is what makes it more synergistic where you're how do you sort of get more wallet size from these customers? That's the key theme versus if you don't then you're just saying hey, we're just going to buy all these different things in our field.

Correct. People think of M and A as this major category. In reality you got to break it down to why are you doing M and A? You can break it down into a couple different categories. There is one just pure market share gain. This market should be consolidated. We have a good product, we have a leading position and we want to solidify that position. That's valid. M and A. There is what I call product expansion. We want to sell more products to the same customers and where people go wrong on that one sometimes, just as an aside is they go different product and different customer. I kind of sell to GCs as well as CFOs. I'm going to add on this product instead. And in reality you want to think about if you're going to go the product adjacency route you want. Ideally same customer that buys your current product will also buy your new product. The same buyer within that organization. And then you have geo expansion, you have new channels that you can get into as other strategies and just getting really crisp about what type of M and A you're doing. Cause each of those types of M and A also come with their own playbook of like how do I implement it, what do I actually care about? How am I changing my diligence?

What if you're a product that wants to get to a different customer base and I'm going to use our company example because why not for us like we have core customer corporate development and I'd say one piece is we're doing all this cool AI with contract analysis.

Yeah.

We don't actively sell to lawyers, lawyers, law firms. I'm like this is a big market. We got a great product that does this and a bunch more. Totally does it make sense for me to buy? And you're starting to see this big shift where a lot of these companies you got to keep up with all generative AI or you're getting a legacy phasing out. So there are products like that where their growth has gone stagnant because they haven't kept up. Is that still considered a good practice here? If I go buy a company like that with this anticipation of we could at least leverage their sales team and go merge them in. Now we can go start distributing to the law firm.

I think it depends on where you are in your life cycle.

I can tell you see this go sideways.

Come on, I've definitely seen it. I'll use a more obvious example and then we'll get back to M and A. Oftentimes I'll work with companies who are 65% of our portfolio is North American based, 25% is Western Europe, 10% is mostly Israel and then there's another 5% rest of the world. I'll pretty much always get the question when companies get to 25, 30, 40 million of revenue that they're mostly US based and they're like should we go to APAC? I got one customer who called me from Japan. Maybe we should start a Japan office. My push to them is always all right, have we run out of space in the U.S. are you telling me we've run out of space? Because the cack of going all the way over to Japan and setting up a new office and figuring out that motion and being 12 time zones away is going and getting that dollar cheaper than going and getting your next dollar in the US and the answer is usually you almost no always know at some point you will hit a scale where you have to go do that. On the M and A side to your exact question, using Dream as the example, I'd say it depends on where you are in your growth journey. So my sense is you're still growing but still relatively early. I'd say keeping focus on more things you could sell to corp dev. One, you'll have a better CAC going after just that corp dev buyer. But two, I also think you'll get a better multiple eventually if you raise or whenever you sell the business of saying we own own this customer. Having strategic positioning is the most important thing. Having a strong strategic position where a customer relies on your software and lives in your software, that is the ultimate thing that you're aiming at and that's what makes software sticky. If you have heft within a buyer within a segment, you'll likely grow better and you'll get paid more than having some tendrils into one customer over here, another customer over there, and selling a little bit. Sometimes companies try and get. They lose focus early and they end up trying to launch too many products too early. And we're all people, we all have time constraints. Time is the toughest resource. No matter how good of a multitasker you are, you can probably only concentrate on two to three big rocks at any given time, and really probably only one to two big rocks at any given time. And the more you stay focused, we've just seen it time and again, the companies that get to IPO status, they get to amazing stories. Usually they have an amazing core product and that core product has grown immensely and then they've started to build out. Once they started to get to that scale, I think if you split your focus too early, it ends up being a distraction.

Yeah, because this other customer profile is going to have a bunch of different needs and you're going to end up focusing on all this product work as opposed to that one core.

You have to be flexible too. My sense is your product is awesome. It's working really well. Corp. Dev buyers love it. There's more to go sell versus my brother's a founder, my wife's a founder. I totally get the early stage journey. And sometimes you're grasping for straws in the dark and you're like, all right, that customer is willing to pay me some money, so maybe we should go grasp after that. In the early stages, you are really trying to find product market fit. You may do some customer work or go after some customers that weren't quite your original vision. And you have to do that to survive, especially if you're going to bootstrap. If your product's working, keep hammering on it.

I'm going to blame the investors on this. They give me pushback. They want to see a high tam because 20 million getting there is not high enough. They want to see a roadway for you to get to 40, 50 million and then it's okay. You got to find other segments to sell on tickets. Corp. Dev, we have 250 customers. It'll taper off around 20, 25 million. Like all right, we got to find either private equity is another vertical investment banking or the law firm.

I started my career here, so originally like engineer by background. First job in college was for Procter and Gamble, literally designing fabric softener. In a lab and then ended up after school going to Bain to be a management consultant, mostly working our private equity group. So I've been in and around the space, but really I started my career as an investor in 2015. The first part of my career was all up and to the right. So I saw the expansion of software as a market. But you also saw the seeding of just some of these bad behaviors and bad incentives. Honestly, a little bit on our part of growth at all costs, burn at all costs. And the thing that I felt really fortunate about here is we've always been pretty fundamental investors. And what people get wrong sometimes is they look at burn and they say, oh, burn by itself is a bad thing. Now or back in the day, we're like, burn is fine. In reality, what really matters is your unit economics. For every dollar I put out, how many dollars am I getting back? I remember I talked to the WIX founder years ago, Abishai. Jeff Horing, our founder, was like, he's in town, you should go talk with him. Just pick his brain on what the best metrics are. And he actually used not just CAC payback, but cash CAC payback. He's like, how quickly can I get CA back? Because then I can go and reinvest it. I can go put it more into marketing. But he was so tight on, for every dollar I put out, here's how many dollars I get back and how quickly and how much does it multiply over time for us, our company should only be burning if their union economics are good. And yeah, if it means I have to go spend $10 million today, but I know I'm going to get 50 million out of it over the next two years, you should go spend those dollars. If you're like, oh, I'm paying you a dollar, I'm paying you 10 million today, I'm going to get 5 million from you next year, and maybe less than that the year after that. You'd probably not make that trade off. It's really easy for people to get caught up in just the pure P and L. Here's the growth rate, here's the burn. In reality, you got to really break it down to, for every dollar I put out, what am I getting back? That's where people took rules of thumb and they went a little bit crazy to your point. And they were like, I need big tams. And you're like, why do you need a big tam? If you told me that actually I have $100 million TAM and to hit my projections over the next five years, I only need to add 10 million a year. And I feel like all this TAM is going to come up for sale in a given year. I feel like I have the best product, I can win 70% of it. I actually think you may have enough room, but people want to see the big billion dollar TAM number. In reality, you just have to think about is there enough market that every year there's enough customers that are trying to make a buying decision and can I go capture more than my fair share of those and is that enough to meet my projections? And if that's the case, probably fine. Sorry for the metrics rant.

I wanted that. I wanted to be challenged on this stuff. This is. You run the whole portfolio support side of it. Can we talk through, like how insight supports M and A execution? Especially like a lot of these deals, I guess. What's your split between majority ownership versus minority?

Yeah. So for us, we have about 40% of our portfolio on a dollar basis is control. So 40% in control, 60% of minority on a count basis, it's about 15% of our companies on a number of companies basis are control and about 85% are minority. So the vast majority of our portfolio is minority deals.

You treat them different?

Yes, yes and no. But I would say this part of it is just the mentality. First and foremost, we want to be the best partners to our companies. And that comes from the venture heritage. That comes from this idea of we sell founders on our vision. We want to be good partners to those founders. Those founders don't have to listen to us on the minority side. What that's created is a created culture. Even on our buyout deals, you could ask any of the CEOs that I work with and they would say, yeah, Byron probably pushes sometimes, but ultimately he is a good partner. If you really think about what control means, a lot of people in our industry take the sense of, oh, I'm the majority investor. You have to listen to everything I say, but your only real lever is whether you're going to hire or fire the CEO. If you're not willing to do that, you got to let your management company run the organization. We're investors. We don't run businesses. Our management teams run their businesses. We take that perspective of we want the best teams in there, we want to be the best partners to those folks and support them. And yes, there will be some hard decisions every now and then in the control portfolio, but ultimately we want to treat companies the same. And my favorite stat is I mentioned, we have 85% of our portfolio that is minority. They don't have to listen to us. But if you look at engagement with our portfolio team, our Insight onsite team, that team of advisors and diligence folks, portfolio strategists like my team, our Insight onsite team touches somewhere between 65 and 80% of the portfolio every quarter. That means that 80% of the portfolio has come to a webinar that we've hosted, done a call with one of our operational experts, done a strategy meeting. We touched the portfolio. A lot of our LPs ask all the time. Oh, only 15% of our control. Do you only touch those? No, we touched the whole portfolio. We feel really confident that we've built the machine to be as useful to everybody and that no matter what stage you come in at, we've seen the journey before. We have the data, we have the expertise, we have the access to help you and we just want to be good partners along the way.

What does it look like when it comes to supporting M and A for these minority chaired parcos?

It depends. There are some portfolio companies where they're not interested in M and A. We won't by default set up an M and A team to go support them. But if a portfolio CEO comes to us or CFO or usually the Vine Venture ones, don't have a head of corp dev yet, if an exec comes and says oh this is really interesting opportunity or our sourcing team finds something that they think could be interesting, we will spin up the effort and it tends to be on the board member plus somebody from Insight onsite or on our deal team. We'll go have the one off conversation. What you can do is separate out the portfolio by companies where we set up a more structured approach and repeatable approach to M and A. And then there are the one off M and A situations and that doesn't break down by control versus minority. There are minority companies that will fall into the we have a repeatable motion. The goal is figure out what is the appetite for M and A. Do we think M and A can be a growth lever here regardless of our ownership structure? And then we will work to set that up. If you look at the repeatable model, what that typically entails is CEO, cfo, maybe head of corp dev. Depending where they are in their journey, we'll meet with our team and essentially say all right, I'm going to craft strategies so help them think through like where do you want to go? But oftentimes that's CEO led. Then we create a sourcing strategy and we have execution. So we can actually help them do the diligence, go through all the pieces of the operations. We'll partner with the management team to get that done. All the way through actually funding it. So we have a whole cap markets team. And huge shout out to Kevin and Nate, who run that team. They would actually think about like, how do I go fund this deal? Is it debt? Is it equity? Should we bring in co investors? Do LPs want to get in on this? We will go soup to nuts on M and A.

That's a lot of support for a portco, especially one you have a minority stake. Charge for that.

We don't. Everything's free. The amount of value that we've created is more than pays for itself. Every time we do the ROI analysis, it's bonkers. Take pricing. We got a couple people who do pricing for us. I'm using that as an example because I think it's the simplest one. There's a company where our team met with them for maybe 25 hours over the span of a month to kind of restructure how this company was looking at pricing. They dropped $2 million down to EBITDA line using the new strategy. That's $2 million. You put whatever multiple you want to put on it somewhere between 15 and 20. You're talking about 30 to 40 million dollars of value for this person's 25 hours of work. The ROI on that is just a bit bonkers for us. The reason we don't charge for it and see Hillary Gosher who runs the full team. So I have our diligence strategy group, we have Pablo who runs our advisory teams. That's all the former C level folks. And then you have Mike Hayes who runs our access team, and then Brian who runs our talent team. Just sourcing good talent. But Hillary, she's the OG. She founded Insight Onsite back in 2000. She's been the one that's grown it and seen it. Her big push has always been we could go and charge portfolio companies. There's a lot of our peers who will charge for consulting fees and management fees and all of that. But ultimately it creates two issues. One is companies who don't pay are not going to get access to it, even though they actually really may need the help. And then two, if there is a company who has paid, but we don't think that there's actually much value to create, we still have people show up, we'll still have them have to go and justify why they're paying and so they'll go to the board meetings and it becomes this whole thing of, oh, because you guys are paying me for the service, I have to show up even if there's nothing for them to do. We think it creates complete alignment between teams to not charge for it because any company who needs the help can ask for the help. And then ultimately though, on our side, we get to go where we think the highest ROI is just because a company asks. We always want to be useful and we've created scalable platforms. But there may be something where I have told companies before, hey, that ask is I know it's useful, but why don't I actually go help you find an external consultant to do that? Or I actually think you need to hire two more people on your team to go do that. That's not something we do. There's no justification of our existence because we only want to go after the meaningful problems where we think we can actually have ROI in these businesses. Our incentives are 100% aligned to our.

Portfolio companies because you do everything right. Rent or buyout. How do M and A strategies differ at these different stages? And where do you see the commonalities?

Every company at every stage should be thinking about M and A as a potential leverage. If you reverse back the clock to 2015, M&A was just this PE thing. All the venture guys, investors, companies that are like, it's a distraction. We have the best products in sliced bread. We're going to take over the world. There's no need to do M and A, any of that. What we've seen over the years is one that markets come around to even for venture, that they should be open to doing M and A. What ends up happening is we talked a bit about the repeatable versus the one off model. I would say on the venture side it tends to be you're leaning more organic growth than inorganic. We want to encourage our companies to be open to the one off possibility. Is there a company that you could go buy that would be a total game changer for your strategic positioning in the market or expansion into this new vertical. And we try and identify that with the venture companies early. And then we say, all right, our sourcing engine. And I should probably speak a little bit about our structure at insight. We have 70 folks who their job is go find software businesses like they are talking to in the latest stats, something like 40,000 software businesses a year. All we're doing is trying to like if it looks like software Anywhere in the world. We want to talk to it and we want to know it. We've built this engine to just understand the software market. What we do is we'll work with a venture business. We'll identify what are the game changing moves that they could make and then the sourcing team will put it on their radar. And if they can crack one of those, great. And we'll send it in on the buyout side. And for some of our larger minority positions, we will have a more dedicated strategy of we're going to talk about it day one. What's the strategy you want to go after? How are we thinking about inorganic growth? We'll set up a regular cadence, whether it's monthly or every two months of checking in with the business. It'll be dedicated to an analyst or an associate on our sourcing team of like, all right, certain percentage of your time is actually dedicated to this company to help them find deals. And then we do have dedicated portfolio support that can help them think through, actually doing the execution, thinking through the implementation or integration plan and actually getting like the deal fully done.

How do you look at the deals that just pan out the best? We used the example earlier when we were talking to the side around buying the competitor. Yeah, there's that. Then there's. What was the term you used earlier? Architecture. You started figuring out all these other products that you can sell into your customers.

Yeah.

What works best? What do you see as the best bet? Especially the companies at that earlier stage too.

In terms of what works best, it is just going to depend on what you're going for strategically. We use this phrase when we first make an investment. I want the CEO and management team to write the S1 on day one. Obviously not everybody in our portfolio is going to IPO, but the S1 is the marketing document that pre IPO business puts out into the market right before they go public. And it basically spells out, here's where we are today and here's the vision and here's why you should invest in this business. And what my hope is always for all of our businesses is the day we invest, we should be writing what we want that to be. It's the Amazon write the press release before you do any initiative. It's the same idea. What's the public story you're going to tell in five, six, seven, eight years? How do we then align everything to that? When we think about actually going and doing M and A, it's going to look slightly different. There are going to be somewhere it's purely about product. Take M&MI. We feel like we have an amazing customer base, a ton of volume moving through. It's all channel. And we have the channel now. We just got to put product through that channel versus you take a company like Bullhorn. I know Art Pappas was on the podcast at some point, and he is like, he's an amazing CEO. He's like one of the best CEOs I've ever had the pleasure of working with. I say that because if you just look at his journey, you don't get that many CEOs who found a business, go through the whole venture growth stage, sell the pe. He's on his third PE sponsor at this point. He survived throughout and he's grown and he wrote the first version of the product. He knows the product in depth, but he's great on sales. He's great on vision, he's great on execution and hiring and all those things. I won't stroke his ego too much, but I think he's great.

Check out the podcast. But no, I totally agree.

You should definitely. But I think for him, if you look at that business.

Just to clarify, this is an actual exercise you do with your port goes. I think you referred to this in a past conversation, the strategic positioning as the North Star. Let's go. Walk me through it.

Strategic positioning. So the strategic positioning piece is that S1 statement of where are we going to be? Who do we want to be? What are the core tenets of building an amazing business? If you know you have to expand your market, I'll take Bullhorn just because we were just talking about it pretty much from day one. The strategic positioning we wanted to achieve was the first core tenet is we need to be the clear market leader within our recruiting CRM business. All of the actual back office pieces, we want to have 50, 60, 70% market share. That was one piece. And then the second component was we knew we needed to expand the market. It's a big market. It's probably 800 to $1 billion of TAM. And we thought we could really grow into that and make a giant business. But we also knew that wouldn't it be nice to have another billion dollars of tam? And pretty early in that business, we had those two strategic positioning imperatives. And we said, all right, we're going to use M and A mostly for the first one. So how do we actually build market share? How do we really think about the positioning of adding new features and making sure that the customers are still happy and making sure that they're retained. And then on the organic side, on the expanding the tam, we had one or two small product acquisitions, but we also invested meaningfully in the organic product. Like Art came, I think, at our first board meeting and said, I think I can unlock 500 million of Tammy with a $3 million product R& D investment. Of course, we greenlit it, and you fast forward to when we actually sold it. So we sold that business three and a half years after we initially invested for pretty good return. And that was core to the story.

Let's sub that out. A damn good return.

It was good. And what was fascinating is we bought that business from another sponsor. Operationally, that business was humming. There's always this idea of, oh, if you buy it from a sponsor, it's already been optimized and can you actually get a return? I would say we bought it. It was in great shape. Art and his team were operationally amazing. What our unlock was as Insight is taking a little bit of our venture heritage. We're willing to swing for stuff. We're willing to go after the product expansion, go after some of this M and A in a slightly more aggressive fashion. And we aggressively pursued it, and it was a good return. I do think that building where we could have just done the same thing and would have been a fine return. But if you really want to go for the good return, getting the vision of where you need to be and then staying focused yet aggressive on those paths is the right call.

That's what shape which deals you should be doing.

Totally.

What does it mean? Founder led, but not founder limited.

We want to be really good partners. As I said before, we want to be amazing partners to all of our companies. And most of the. I said 85% of our portfolio is minority. A lot of those are founders. And there is something about founder energy that I think is amazing, and we want to harness that as much as possible. But there's also a lot of founders who, by the time we invest, it's the biggest business they've ever run in their life. There's something really meaningful to be said for supplementing that founder with other execs and making sure that we're both harnessing the amazing talents of that founder, because getting it to whatever scale that we're investing in is no easy feat. We want to keep that energy, but we also want to make sure that we're supplementing with folks who have seen the story before and can look around the curve. Not to say that they're going to know exactly where the destination is, but at least they know that nine times out of 10, if bookings is off, you should do X. And just seeing some of those processes at scale, it's like, why wouldn't you use that data? For us, when you think about founder led, but not founder limited, we want to help our founders grow and we want to help our founders build the best business. And ultimately we are aligned. About my consulting days versus now on the investing side, we have zero incentive other than make your business bigger and worth more. We only get paid when the business is worth more tomorrow than it was today. A lot of our founders, they are meaningful shareholders and our goal is make sure that their dollars are multiplied as well. It's really working with them to harness what they're really great at, supplement them on places where they could potentially grow or over those blind spots and just be good partners to them.

What about the founders? Okay, I got some belief in your model here. You've worked with hundreds of founders, CEOs. What are the key qualities that you see are the ones that will scale well through M and A versus the ones that don't?

It's a good question. The thing I love most about a lot of our founders is like they love their businesses, they are obsessive. You have to be. You have to get into the details and you have to really be willing to dig deeper. But at the same time, you also have to be flexible. Where I've seen founders, maybe I'll take the opposite of your question. Where I've seen founders go wrong is a belief that their product's always the best, a belief that they are 100% always the right person to solve the issue at hand. The most successful founders in our portfolio are the ones who are willing to ask for help, who are willing to acknowledge their blind spots, but also are super confident in where they are really good and they are willing to dig in. And the partnership really works with us. Our biggest value add for a lot of our founders is bringing data and expertise and saying ultimately your business is going to be like it's your baby. You know it well. But maybe I can bring a couple other Data points of 10 other businesses that have gone through the same problem with you. And those who are willing to listen tend to, or at least be open to the idea, tend to do quite well.

So just don't have a big ego.

Yeah, I'd say this. The investing community, there is ego inherent in the job. You have to be willing to inherently pay more than other people or take a bet on something and believe that you are right over others. If you are purely doing what everybody else says, you're never going to make any money in this job. Inherently, you have to have some ego as an investor. But ultimately, the thing that I love most about insight, I don't know if I do this exact job anywhere else. I do think this place is special. And the reason for that is I talked about our core values earlier around committing reinvention. But our number one core value is hunger to win. We want to be in the best deals, we want to be with the best founders. We want those businesses to be super successful. But our number two value is heart. How many investment firms have heart as their number two value? And the reason I bring that up is we always want to do things in the right way. Even though there is ego and you have to have an opinion, it doesn't mean you got to beat people over the head with it and you want to be fair about it. We ask our founders to be similar and we ask our execs to be similar of we hired you or we invested in you because we think you're the best. We think you are the person to run this business, you're the person to get it there. We'd also ask that if something comes up that you're willing to take direction. It's potentially trite, but it's like my wife always jokes. She's like, we'll be in a foreign country. She's like, why don't we just ask for directions? I've learned over the years, I was like, I just need to ask for directions. Every now and then we use the waze analogy. We say our CEOs are in the driver's seat. Ultimately they have their hands on the steering wheel. But if we can be waze and we can say, hey, actually there's a crash up ahead and maybe you should turn right. That's all we want to be. We want to help them get there. But ultimately they got their hands on the wheel. They're the ones driving. But we have to take direction and not just drive in the traffic.

I like that. Buyer led. We talked about just your rigor around having this strategy, strategic positioning, supporting a lot of these portcos with finding opportunities and just being proactive and not just waiting for stuff to show up on a field book. M and A. I know most PE firms usually have a 90, 100 day plan model. How do you work with portfolio companies? We go through the deal, got something we're going to close. Hopefully you're planning integration before you close. Can you walk me through what that support looks like?

Yeah, totally. We 100% think you should have an integration plan before you close. I hope that every company has an integration plan before they close.

How about an integration thesis at loi?

I mean you should. And it goes back to those categories of types of M and A you're doing. There are times where 100 day plans go wrong. They feel like they are boil the ocean, very static documents and they're like, I have to have this hundred day plan and like we're going to tick through all the boxes. Yes. There is a certain level of like there are, you know, you got to get people new badges, you got to get laptops, you got to move the systems. There are like really minutiae things that do have to get done so that everybody feels, especially on the acquired business. You want employees to feel like they're being welcomed into this new environment. You want them to feel like, okay, there's a path forward and if somebody's badge doesn't work on the first day, everybody spirals. You do have to have the checklist. But ultimately the best hundred day plans are one, flexible and regularly updated and then two, depending on the category, they are tailored to what the situation is. This is a. If you have a hundred day plan for a five person acqui hire that looks very different than, oh, I'm doing a merger of equals of two direct competitors in the same geo. Those are fundamentally different hundred day plans. And so you have to create those different plans and then you have to be willing to adapt. One of my favorite, I got a lot of favorite CEOs and one of the ones I've learned the most from is our CEOs Lisa Stinnet over at Inhabitiq. She is a machine on M and A and ultimately if you look at her 100 day plans, every deal that she's done has a 100 day plan and it gets updated every 30 days. The team is just methodical around understanding where it is, updating, moving and then reassessing where it is. They just have this cadence and it's the right balance of focusing on what matters while still being flexible to keep it ongoing. And then you talked about support. We will be heavy on the strategy creation, we'll be heavy on the sourcing and the execution where needed. Sometimes our companies say, I got it. This is the tenth deal they've done. They have a full corp dev team and we're not dogmatic about being in their shorts about it. We're just here to Be helpful. Again, it goes back to the alignment piece. We only care about the outcome. We don't care about we have to do something X way or Y way. But we are always willing to be helpful on the execution and getting the funding and the transaction done. We do want to be helpful on getting the 100 day plan set up. What I learned relatively early in my career though is if we own the 100 day plan, it doesn't get done as well as if the company owns 100 day plan. Meaning that somebody in the company has to be accountable to it. Whether it's a CFO or the head of FP&A. It should be 70 to 100% of one person's job for the foreseeable future to get it done. Adam Berger, one of our operating partners who has just been an amazing mentor to me over the years, he always says, if this M and A is not the most important thing on the strategic roadmap, you probably shouldn't be doing it. And he said a lot of people cheap out and they say, oh, it'll be 10% of the CFOs time, 20% of the head of FP&A's time, maybe 5% of all these other people's time. And he's like, no, no. You need one person who is going to update that plan, make sure all the functional leads are actually coordinating and updating their plan, running the weekly standup. Somebody has to own it. And if it's not important enough for you to make it 100% of somebody's job, you should probably not be doing the deal.

It's a big bet.

Yeah.

It's interesting talking to different sizes of firms and I'm almost like seeing a correlation between how much AUM a firm has, how much portfolio support they can provide. Is that a real thing? And there's a different topic. We can debate this with me directly or not here, but the bigger funds will pay more. You don't have to answer that.

Hopefully not.

Yeah. I think it goes back to what we talked about earlier, like how much you belief you have in your strategy and what you're going to execute should determine what you're paying for it.

Totally.

But on that portfolio support, that's what I've noticed. If you're small fund, definitely like sub billion, sub 500 million.

I think it's tough for us. We've leaned into scale as a differentiator and ultimately we believe there are two components that really matter at scale. Access and expertise. Everything's about access and it's like, how do we use our scale to get you better access? That's more access to other portfolio companies. We don't have all the answers internally, but I'm pretty sure that One of our 500 other companies has solved the problem you're trying to solve. And we want access to other portfolio companies. I want access to buyers, our inside ignite team or enterprise team. They spend their lives looking for relationships in the Fortune 1000. They want to know the buyers of software in C level buyers within all of the Fortune 1000 companies. We want to provide access to that and use our scale and our portfolio scale to actually provide that access. And then on the expertise side, we want to use all of our data. There's AUM scale, but there's also like we've invested in probably 800 companies over our lifespan, exited hundreds of companies. We've seen companies go through every within a vertical. Like we probably have 12 data points of other companies that have gone through your journey. And we want to use the data as well as the expertise from people who have actually sat in your seat to give advice. You can't do all that in a billion dollar fund. You just literally can't pay for the. You use this phrase cost center. For us, it's an investment and we think it has a super high roi, as we already talked about. But ultimately that's a lot of cost that we're bearing and that benefits our portfolio, that benefits our LPs. We fundamentally put our money where our mouth is of believing that we can change the math fundamentally. Why can strategics pay more than PE firms? It's because they can change the math. They just have a different math. They can plug in whatever acquisition into their existing behemoth of a business. The sales channel is already set up. They already have a good R and D or they're able to pay more and still have good deals because they have different math. Our goal is to do the same thing. How do we have different math using our scale? As we talked about over lunch, there's really only two ways to make money. I would say there used to be three ways in that you can always get. You can just find things before other people. It's becoming harder and harder. We still do it. I would say half our deals are still proprietary or you're not going through a bank process or we've had a relationship. The average time between first meeting a company and actually getting a deal done is three years. That's the media. We're really getting to know people over a long Time. But I think that is going away even earlier stage companies are getting bankers involved and all of that go through fundraiser. So really the only two advantages you have to make money in this industry is either taking more risk or changing the math, having better operational support. And we've said ideally you wouldn't take more risk, you take educated risk. We're obviously in the business of taking risks. Ultimately, if we can also lean on better operational support, there's good ways of driving return. Simply using our expertise and our access at scale within this portfolio.

Yeah, that's a big part of it. Is one of the pillars when looking at what private equity firm to work with. It's the price they'll pay, the terms and then operational support that comes.

Working together, you also got to like them too.

That fits in there too.

Raising capital. Somebody once said raising capital is like getting married. You're stuck with us, we're stuck with you, and we both have to make it work. And ultimately, again, it goes back to why I think heart is a meaningful value is we always want to do the right thing. We want to be fair. It doesn't mean we're going to be soft, but it does mean that we're always going to be fair, be good partners to our portfolio companies. And ultimately you want people around the table who are going to be both your biggest cheerleader, but also your biggest coach on pushing you a bit.

Make sure you have good prenup.

Yeah, those don't fully exist. Right.

That goes back to the terms, the terms you mentioned too. At lunch. Buyers are getting more sophisticated. Tell me more about that.

Buyers are definitely getting more sophisticated. Part of it is just the market that we're in. When I first started here in 2015, we're still a small team and there's this amazing rite of passage that our team would usually help our investor relations team put together all the materials for our annual meeting. My first year here, I was a lucky one who drew the straw of putting together all the materials for this thing. But it got me more involved in our IR process. Ultimately, what it allowed me to do was go to LP meetings, hear questions from LPs. What was fascinating is in 2015, you talk to LPs and they were like, why are you guys doing software? Why are you all focused on software? Why should I, as an lp, invest in software? I got real estate, I got industrials, I got pharma, I got healthcare software. Only. Why does that need to even be a part of my portfolio? Then you fast forwarded to five years, 2019, 20, 20. And then the question was, oh, I totally get why I need software. What makes you guys different? That level of competition has just the realization of everybody wants to be in high tech. You look at the Magnificent Seven, all of that, everybody knows that a lot of the returns are going towards software and tech. It's not even a question anymore that people should be in it. And what that's created is a market where you get more entrants. I would say in 2019 through 2021, you got a lot of people who started to do their first software deals and then they realized after that they're like, oh, maybe I should do more software. You've got a lot of entrance into the market. And what's created is people are now used to looking at software assets and then they've also looked at more of them over time, so they've learned what to look for. Software buyers are just becoming more and more sophisticated, as in the market. And for us, what that means is you've got to have really good product and you got to think about where your mode is. What we've seen through cycles is like the A plus businesses will always get A plus pricing. But I think in the heat of 2020 and 2021, you got a lot of B businesses getting A pricing still where the market has corrected to and actually think we're in a good part of the market is A plus, businesses should get A plus prices, B businesses should get B prices, and C businesses should get C prices. People are becoming more and more discerning as software as a market has grown and the entrance into investing in software has also grown.

It is, it's getting a lot more competitive. I'd love to just touch on just the themes, whether it is trends you're seeing around value add models that go beyond capital. We got AI everywhere. Everybody's slapping AI everything, sometimes using that as a reason to go increase valuation and stuff. And then you've just got all these startups popping over where they are grazing on crazy valuations. What's your view? Teach me something there that I need to be think about as a founder of a business that's trying to keep up with some new AI features.

Yeah, no, we can definitely talk about AI trends and we're making a big push internally. We have this initiative called 5 and 5. We have this fundamental belief that all of our businesses should be able to get 5 points of growth and 5 points of margin out using AI. We fundamentally believe that we should be able to accelerate the growth and that if you look at GNA S&M, R and D especially, there's a lot more places for efficiency using AI. I think R and D has been one of the biggest unlocks. If you look at where the most use cases are using AI today, it is within engineering. What's amazing there is if you reverse the clock back five, six years, most investors could tell you pretty well what to do and how to optimize S and M. They could probably tell you how to optimize finance and legal and HR and all that. In GNA, R&D was this black box. They were like, oh, don't break the product. And so they wouldn't touch it. And now you're just seeing more efficiency come out of those orgs, better deployment. In DevOps there is a lot of tools using AI and so I think that you'll see a bigger push there. Product As I think about advice when we talk to our companies about this, you should get out ahead of your product and think about where the product mode is versus an AI future. We really push on. How do I actually incorporate it? It doesn't mean you got to fully rewrite it. Historically, one of the most interesting things, hopefully for your listeners on this, with this business Optimizely, where we've been in the business for a few years now, originally we invested in a business called episerver. We ended up merging with a business called Optimizely and they do think of it as web a B testing.

That was an early customer.

Yeah. So they're awesome. Business marketers are famous for having too many tools. We fundamentally believe it's you have your website, you need to figure out how to test it. They're using AI to figure out what test do I run, how do I analyze it? But what was fascinating, they actually used it's a good M and a story. They acquired this business called welcome, kind of a digital asset business. As all this AI stuff happened, the CEO was actually super out in front. He's like, we have to be AI first, but how are we going to do it? And they actually used the founder of that business they acquired welcome. He became the AI guru across the business. And what they ended up doing, which was really cool, was they had really strong software across multiple parts of the marketing stack. Instead of taking the conventional wisdom of oh, I got to go rewrite all of these pieces of software and be AI first, they actually said those software components actually work super well and we're just going to create an orchestration layer over the top. And so that founder And Alex's CEO were amazing and that basically developed a copilot on top of their existing software. And so they didn't need to rewrite. But fundamentally the user experience changed. And now you as a user, you did all the orchestration using your AI copilot and you didn't actually have to touch the underlying pieces of software at all, really. They went against this conventional wisdom of if you're old and legacy or if your software is written more than five years ago, you're going to be dead. And they're like, no, no way. Our software is good. It actually creates a lot of value. We're just going to give you the right user interface to it and we're going to allow you to orchestrate our software even better.

Disrupt those users totally.

And then they used all the data coming out. They have so much data underneath. So it was an example of an incumbent utilizing it versus being afraid of it. And I think that's ultimately where you got to be. And hats off to Alex and that team for being ahead of the trend. Being super thoughtful and my senses, it's not one of mine, but my senses from the team, it's growing well and the growth is accelerating quite well off of the back of the A lot of this AI orchestration and utilizing the new tools at your disposal.

It's a great example. You gotta be taking bets on AI if you're a company in the field today.

Totally. Budgets are also fairly unlimited with AI. We'll see when the music stops. But what's interesting is this is maybe my hot take that people won't want to agree with, but you get a lot of articles talking about AI is fundamentally different business model. You can't underwrite it the same as software, all of that stuff. I do think some of that's true. I do think the pace is moving quicker. I do think the adoption has been amazing. You maybe don't need the same amount of tooling or people that you need. But fundamentally, a business is a business. I create product. I have to have a channel to sell that product. Somebody has to buy that product and use it. Then they have to renew their contract. The fundamentals of business and what you're looking for. Am I bringing in more customers? Are they staying with me? Am I keeping them happy? Are they paying me more over time? Those haven't fundamentally changed. The reason that the metrics look so funky is I haven't been through as many cycles as some of our most senior partners, but it's the first time, at least in my Career where you've seen just supply and demand completely meet. Before you look at the SaaS conversion, I spent the first five years looking at companies and really thinking about, oh, enterprises are slowly moving from on Prem to SaaS. They should have all moved, but they're just slow moving versus the first time where every single company across the world was like, oh, shoot, I need to go invest in AI. And so they released budget at the same time where the capabilities were there. That's why these growth curves look like vertical, because you just had this really good supply demand meeting moment. In reality, I think over time people will think about where the budgets are and I do think you'll get it'll look more fundamental. We're at a super interesting time right now where the supply of technology and the demand dollars are fundamentally overlapped and I think you'll see that for a few years. Fundamentally, at the end of the day, I think the fundamentals will still be okay and it will still be similar long term.

We'll see if valuations come down.

I would say it's unprecedented. You're seeing some of these rounds happening.

And the growth is there.

The growth is there.

What's the craziest thing you've seen in M and A?

M and A ultimately comes down to the people. I've seen founder to founder shouting matches. I've seen deals blow up three or four times before actually getting done. Fundamentally, like everything in life, spreadsheets, yes, they work well together, but fundamentally you got to get people working with other people to drive the business forward. Ultimately, emotions always play a factor and logic always has to somewhat overcome it. Even software business, yes, there's a lot of workflow, but most of the costs are. And we are in a people business.

People are both predictable and unpredictable.

100%. Oftentimes, M& A can feel very existential, both for founders, shareholders and also employees. There's a lot of emotion in selling your baby or there's a lot of emotion in getting acquired. As somebody who's worked with businesses to acquire a lot of companies, we always lead with this idea of you got to be open and transparent and thoughtful. And the goal is be good humans. Make sure that people feel stable. Give them the right vision. Don't hide the hard decisions. I listened to one of your podcasts that you just did. I think it was with the Alpine Invest folks and one of the best pieces of advice was have the hard conversations early, get it all out there and get aligned early. That's totally right.

It's been an awesome conversation. Thank you for taking the time helping me become a better M and A scientist here.

This is amazing. Thank you so much Kisan. Really appreciate it.

Hey those of you listening all the way to the end, hello M and A Scientist. I appreciate you tuning in, listening through. I love hearing from you. I'm Most reachable on LinkedIn. Connect with me. Give me some feedback. The good and the bad. Like the criticism. That's how I learned to get better at this. You got some interesting topic ideas I haven't picked on. Until next time. Here's to the deal.

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