Robert Smith - Investing in Enterprise Software

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts and you can access all our podcasts, including edited transcripts, show notes and other resources to keep learning at joincolossus.com.

**SPEAKER_2** (1:44)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management.
This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (2:08)
My guest today is Robert Smith, the founder, CEO and chairman of Vista Equity Partners.
An engineer by training, Robert started Vista at the turn of the millennium and built it into one of the world's most successful software focused private equity firms. We discussed the white space left in enterprise software investing, the importance of capital cycles and what he's learned building an iconic investing franchise. Please enjoy my discussion with Robert Smith.
So Robert, I was toying with where to begin our discussion and because we're in such an interesting market for software companies, let's say if you just looked at public equities where multiples have come way down. My first question is one of perspective. You've been investing in software, maybe more specifically enterprise software for a very long time. I think if you have to find the right pond to fish in, you found this pond earlier than most. Maybe just lend some perspective to us on what this market looks and feels like to you versus your long history backing these sorts of businesses.

**Robert Smith** (3:03)
The whole reason I even got into this space, I started my career as a chemical engineer, is at a time when we were really doing some interesting things in that area. And part of it was we were digitizing the operational elements of what we call unit operations, i.e. running plants and facilities, et cetera. And we were going from an analog model where you're what I call observing an event might be a reaction, a state of reaction, and then making an adjustment, adjusting various inputs to modulate that reaction.
Well, when you introduce computing technology into that environment, you go from an observation being episodic or periodic, depending upon who's the operator and what they happen to be thinking about at that moment in time or human foibles.
Yeah, exactly. Literally to you're actually measuring the outputs of a system thousands of times a second, which gives you the ability to then make changes to the inputs at a similar rate. The nature of that is it actually eliminated a tremendous amount of waste in process industries. And then once Moore's law kicked in and computing capacity became more readily available and the insights and the skill sets of people like myself and others expanded through our colleges and university systems, we were able to bring that productivity into the broader industrial environment. And then of course the office environment, where we went from doing things quite manually in the office environment to automated things as simple as word processing and calculations and spreadsheets and ultimately utilizing things like artificial intelligence to aid in decision-making created massive efficiency in productivity in our economy. The insight around all of this was, well, at the end of all of this, but as enterprise software, business software that ultimately has now been identified as the most productive tool introduced in our business economy over the last 50 years and likely for the next 50, we as Vista were the first to really stand up a business, to really invest just in that space, enterprise software, not consumer software, but enterprise software. These businesses, as you know, would come to rely on these systems that are governed by software to manage the day-to-day workflows and to bring additional efficiencies to their existing workflows. And in many cases, because of the way that this industry, I'll call it artesians data, can bring new insights into either products or services or solutions or even different workflows that hadn't been conceived up before. The whole idea and conceived around it was, how do you bring, I call it an engineered approach to investing in this space called enterprise software, which actually is a ecosystem into itself.