0:00 spk_0
Over the past 25 years, Vista helped bring enterprise software to the cloud, and now, of course, it’s working on implementing the transition to artificial intelligence. You might also, by the way, recognize Robert from a viral moment in 2019 when he repaid the student loans of 400 graduating students from Morehouse College. He’s a dedicated philanthropist and the author of several books, including his most recent, Lead Boldly, 7.Principles from Dr. Martin Luther King Jr. Robert F. Smith is joining me right now. And B, thanks for being here. Great
0:30 spk_1
to be here. Great to see
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you. I got to start with the theme of the day, the theme of the year, the past couple of years, which has been AI, right, and generate AI generative AI in particular, and I’ll get to investing in AI, which you’ve been doing a lot of, but I do want to start with AI and the workforce because as I’m sure you’re aware, theThe Times reported that Vista has told investors that you plan to cut your workforce in part because of what’s going on with AI potentially by as much as 3. What, what can you, I mean, we’ve been hearing this from a lot of companies, Robert, so it’s not perhaps as shocking as it might have been recently, but what can you tell us aboutthe plan?
1:06 spk_1
Yeah, like, like all things, there’s a fair amount of misstatement in what was reported.Uh, but with all that being said, uh, Gen AI and ultimately Agente Solutions create massive productivity, you know, we, we have over the last 25 years at Vista.Uh, really embraced uh technological change and how we transform our portfolio companies and of course Vista in and of itself, you know, we’ve gone through multiple waves of the digitization of everything in many places, uh, and you think about the distribution first of compute, the Internet of things, mobile, mobile first, cloud, and now we have a new technology, uh, artificial intelligence and utilized through Gen AI and of course Agentech solution sets. What we are finding, uh, is a massive amount of.Activity that comes not surprisingly from from all aspects of what this technology distributes of the infrastructure that we are we are managing if you think about productivity and product development and customer customer service, customer support, uh, go to market, all those dynamics we’re seeing massive productivity. We are built for growth as a firm. We’re gonna continue to grow. What’s interesting is, as you can as you grow, you can actually grow without adding as many people, which is the way you actually have to think about this now in.Certain instances there are gonna be certain categories of jobs that become very much affected by uh uh artificial intelligence and Gen AI. Other categories become very much more enabled by that and so it’s it’s a balance of expression and expansion as you get these systems to actually operate at scale with capacity and part of what we’ve been leaning forward in doing with all of our portfolio companies is we’ve built out now an a agentic factory. We have some fantastic partners.Now able to take these these uh the architecture of these workflow systems called enterprise software, the unique data sets which less than 1% of the data in enterprises actually exist, uh, in these foundational models and actually create agentic solutions that create highly efficient, uh, dynamics in operating through these existing workflows. That’s a unique aspect that enterprise software companies, uh, can actually embrace the value of incumbency is really gonna matter in certain of these industries so that productivity.Well actually absolutely make its way through the overall economy and of course private equity firms ultimately we have unique work flows in private equity firms that we can actually leverage these solutions.
3:28 spk_0
OK, so what did that story get wrong then? I mean because all of that would indicate that you’re pushing towards a leaner workforce potentially or as you say, maybe.Deployed in different ways. Yeah, so what didit get?
3:42 spk_1
Yeah, we are not reducing our staff by 30% or whatever the number was. I don’t know where they got that.
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Are youhiring planning to slow hiring as aresult
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in
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certain
3:52 spk_1
areas, yeah, for sure, but you know when I look at the work that we do in our private equity business, our credit business, our value creation business.Massive amount of opportunity and here’s why you know, if you think about the ways of how technology have played out in in over decades, you know, the first wave of course is typically the I call it the hardware providers capture the vast majority of the economic benefit. Second wave typically are what I call the service providers, infrastructure providers in this case, hyper scalers capture that benefit and you’re seeing that play out.It is the enterprise software vendors ultimately that if you have, I call it sovereignty dominion over workflows and data sets that have the ability to take this agentic solution sets and capture massive amounts of economic rent opportunities and expands their TA dramatically. One of our companies, one of our first companies, uh, that went through our, our AI factory, our Agentic factory now has expanded a market now 10x what they had before.Now the way I like to say it, Gen AI will enable enterprise software to eat services, OK? It will create a massive amount of efficiency in the work that it does and workloads, and we are now installing systems real time across literally hundreds of customers, and it’s, it’s non-trivial work, but as you do the installations, you’re now starting, we’re actually starting to see the benefits of it. Of course we’re taking those same sort of systems and we have been within Visin saying OK what.The areas within a private equity firm that we can leverage so that our people can become more productive and they can expand their their area of their TA of opportunity and the good news is the enterprise software market right now has has a has a uh a disproportionate valuation relative to call it the AI groups and as you make these agentic and AI enabled I think these businesses are gonna create massive upside and opportunity for our investors that’s what we’re focused on.
5:40 spk_0
So it’s, uh, there’s so many threads to pull on in there. I guess I’ll start with the, the valuation question first. Do you think that publicly traded AI is in a bubble?
5:51 spk_1
So what it’s an interesting question in that you know you have to build out infrastructure and again being a student of history around as an investor you have to be.It took massive amounts of capital to build out the infrastructure that we benefit from now. You remember the global crossings of the world, building out cable and and cable and and fiber and OK now and some of those companies went bust. It was in a bubble. Some of those companies ended up being the winners because they built at the right time, right capacity and the needs and demands of what the market, although in
6:20 spk_0
somecases they took decades to come back in some cases.
6:25 spk_1
Absolutely. So that’s those are the dynamics. Everyone looks to be we’re putting trillions of dollars into an infrastructure that is a question of do you have enough power to support it? And you argue, is there, is there a bubble because you can’t support it with the power. There’s an argument around that. Are there enough component parts, you know, is there enough distribution? Are those component parts that that we are looking at today can actually have the give the power demands that are required? We’re hearing, of course, there are.Solution sets that have lower power by 10th of what we’re seeing. So do you need the same sort of power? So all of those are are market dynamics that have to reach certain points of equilibrium over time where we focus again all of that provides infrastructure for enterprise software at the end of the day what we’re gonna be doing is utilizing inference. You can put it in the form of tokens, utilizing inference to create massive economic rent.Productivity for our customers that will all inure to the benefit of those enterprise software vendors who become agenttic so there’s gonna be ebbs and flows over who is actually capturing what value, what period of time. Certain folks will have monopolistic positions for short periods of time and then others will come up with like an all silicon, you know, different solutions that there will be lower cost suit to purpose, different infrastructure. Do you have to have it all centralized.Do it at the edge, you know, in terms of the inference capabilities can you do, do you need, you know, 1 gigawatt power supply or do you need, you know, 50 megawatts to do certain inferences for certain use case applications and is that, is that more suitable for that use case application? So we’re gonna go through those waves and some parts of this market are in bubbles and other parts are very much in a great investablespace.
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Do you think that power is going to be the main constraint?On the build out of AI in theshorter term,
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in the short term in the US, yes, I think in other parts of the global economy they have an excess of power relatively speaking, the question is can they utilize that power to actually power Gen AI or Agente or data systems or GPU data centers in a way that is accessible and usable for those who need it. So again there.There’s not only the power dynamic, there’s accessibility, the, you know, what are the requirements of latency and what are, you know, the size of the models for the use case and application. Not every model needs, you know, a a a massive LLM. Some will be able to use some small language model in an in an environment to deliver a high capacity solution for that particular industry. So again, it’s early, it’s a lot, uh, but it has mass.Of implication and massive productivity, so we’re excited to be a part of what I call the, the, the edge of this thing which ultimately is the enterprise software will capture benefits. We built these businesses now we’re seeing we were converting, I think we have 18 of our companies out I already have agentic solutions in the market that are getting installed or have been installed and seeing real results, and I am just really excited. I’ve never been more excited about investing in enterprise software than I am today.
9:22 spk_0
And you’re probably fortunate to be on the private side of the space right now. Perhaps I, I was taking a look at some of the returns in the public markets because when we talk about A and bubble, we’re mostly not talking about software company enterprise software companies, right? So I was like HubSpot, Atlassian, Salesforce, all of them have been hammered this year. All of them are down pretty sharply this year, and the perception with in some of these cases is that Gen AI is going to replace rather than augment.So do you think that is a risk? Is it a risk for any of your businesses? I mean, it sounds like you said you’re very excited about the opportunity, but at the same time,what’s the risk? Yeah,
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I, I’ve stated to our investors, uh, it’s an enterprise software I believe ends up in 3 states. There is agentic rule of 70 and no right to exist.OK, so certain, you know, public investors can’t necessarily discern between those three categories just yet because they’re not saying enough of the proof points of, OK, is an agenttic enterprise software business, does that create massive growth and massive opportunity? And if they aren’t agenttic, do they have a right to exist? Do they actually have the way I like to think about it is sovereignty and demanding over work flows and data sets that are unique. Less than 1% of enterprise data.Actually exist in these large scale models. So if you actually have that capability incumbency matters and if you build agentic solutions around the work flows that matters. If you don’t have that as an as an existing construct, there’s gonna be some challenges and some problems who actually has the the proprietary access to the work flows and all those work flows designed in a way that you have to do certain things that you can’t do.Uh, in, in an agenttic or in a, in a, in, in a, you know, open world that says hey listen, we need regulatory compliance we need all these sort of aspects that that create an agenttic work flow within those environments. If you do that well you have a right not only to exist but to thrive and to actually expand what is your addressable market.If you haven’t done certain of those aspects in building out your infrastructure and having again the sovereignty and dominion of the workflows and data sets, you may not have a right to exist, but that doesn’t mean you can’t use these G GAI solutions to lower your cost of your delivery dramatically. That’s what I call that rule of 60, rule of 70, increase your profit margins because you’re actually able to lower the cost of development and customer support and go to market, all those sorts of things and.Solution sets at a higher profit which gives you the ability to return capital to your investors that isn’t hasn’t played out yet at size and at scale in the public markets, which is why public investors are still trying to sort all that out.
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Uh, I’m also curious about um sort of deals and exits in that environment right now because you’ve done a lot of big deals over the past several years. um, we have seen more IPOs coming in this market.Um, some AI, but particularly in crypto. So what do you think that environment is gonna be like over the next year? Do you think you’re gonna get some more exits for your investors?
12:19 spk_1
Yeah, we’re, we’re excited. I mean, even in, in this last year we’ve, we’ve been able to return a little over $12 billion which has been exciting.And none of them have been through IPOs, right? So if you think about it, even with the IPO window and market being closed, we have been able to build businesses that strategic buyers have been excited about buying, financial buyers have now been excited about buying, and, you know, positioning those businesses so people understand they have an agentic aspect to them or they’re or they a rule of 70 and have the capacity to deliver over the long term returns to the buyers of those of those sorts of businesses that’s essential to our.Business, you know, our business is to buy, create value, you know, all this operational intelligence that we bring in our best practices is an important part of what we do as investors in enterprise software, you know, with all of that said, now that the IPO market is starting to open, we have a couple of companies in registration and we’re excited about the prospects of what they, what they can lead to in the marketplace. So again, you know, like all things, these, these markets go through different.Different equilibrium states and we’re excited about the fact that now you know public investors are now saying listen we are now in in look in in and look in in in uh in in demand of companies that actually have the ability to sustain growth and market share and market opportunity in very specific uh enterprise software areas and we are fortunate to have companies that fit in those spaces
13:38 spk_0
yeah um II wanna get back to the labor question a little bit because.We keep seeing pretty dismal, um, both anecdata and data about um Gen Z and then Gen Alpha in this job market that it’s tough for them to get jobs. What skills do these people need in the age of AI, especially as you talk about the really the shifting of the job market, um, what do they needto know?
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There’s gonna be a little more what we call the whole brain type of skill, right? You know, my generation, part of our generation, you know, you could, you could be really a STEM person and.You know, as a result of that, you know, there were, there was a a premium on being able to process data and come up with insights and analytics around that data and now you have this new tool and the set of agents that can actually do that much more efficiently, much more quickly and serve you, uh, in, in essence the synthesis of the data based on what it is you’re looking for and now what do you do with that? And so those who got actually a little bit more whole brain creative thoughtful, understanding the ecosystem.The EQ of of of intelligence of engagement. I mean look at our sales agents for instance for a period of time, most people think sales people are selling all the time and when you talk to them they’ll tell you that. Well, if you actually look at the data, they’re only selling about 15% of the time. A lot of the time they’re doing anything from, you know, putting up sales notes and, you know, putting strategies together, all those sorts of things. Think about using a series of agents that prepare your sales people to be more effective. So rather than than taking, you know.Hours to do, you know, sales prep they can it takes minutes. It’s delivered at the time they’re walking into the meeting and now they can focus on I call it the human aspects of what is it that that solves the problem, the relationship that they need. Those are the things that will create massive productivity. So there’s gonna be some shake out in those parts of the market. Do you need as much as they kind of the sales prep uh dynamics that we do today, which were often entry level type jobs, right? But if you have the ability to also orchestrate.To deliver that you can actually now effectively treat and deliver to more sales people that capability so that’s how this is all gonna evolve in many in many of these instances,
15:41 spk_0
um,uh, an issue we’ve talked about before also when you talk about building out your workforce, as you well know, there’s been a backlash against policies that aimed at fostering diversity, equity and inclusion. So when you think about recruiting, whether it’s for Vista itself or for the portfolio companies.Is there still a place for DEI in this environment? Is there still a business case forDEI?
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The business case hasn’t changed. It is, you know, everyone knows the more diverse thought that you have, the lower risk, the higher returns, the data is all out there now how people react to it, that’s, you know, a different, a different instance, but the data is there. I tell our teams constantly keep doing what you’re doing hire the best people, enable them to be effective, ensure that they have the ability to create the connectivity.In America in particular we have to embrace the resources that we have at our disposal. The thing that we have done over the last 2030, 40 years is distribute capability globally, digital capability globally. So a lot of the things that always kept us on the leading edge, you know, now are accessible everywhere. So as an economy if you look about the US economy, you have to actualize as many people as possible using the tool.Tools that are available so that we can be the most productive workforce and deliver the most productivity per person per country that we can in order to to compete as a small country on a on a number of people basis relative to others. That’s why for us it’s important to deliver solutions that teach students, you know, we have partnerships with, you know, some of them HBCUs where we deliver AI systems and curriculum to, you know, Morehouse and Spelman and now.Other HBCUs, our partnerships with Code.org we’ll get over 5 million students who are not only just teaching them code, but now it’s AI, uh, it’s AI centric coding, all those sorts of things we have to equip that K through 12 and then higher ed, uh, groups of students to understand this is the new paradigm of how work’s gonna be done. You need to embrace it. You need to become a master of how it is utilized and and and understand how to scale it not just in.Corporations but also in starting businesses encouraging people to actually use the unique insights they have as entrepreneurs from the communities that they come with to develop businesses and expand those businesses at a much more rapid pace using these technologies and these platforms that’s where the opportunity set really lies forus,
18:01 spk_0
um, Robert, as I, as I mentioned, uh, you have written a number of books and the latest book highlights speeches from Martin Luther King Junior.But sort of through the lens and you add some commentary on your own experiences and reflections and I’m curious whether you think at this current moment in this country there’s been backsliding in terms of racial equity um in America whether we’re talking about politics or culture or business.
18:28 spk_1
Yeah, to to me we have to embrace the assets that we have and that’s our people, our greatest asset in this country are our people. We need to enable and actualize our people and.Part of that means we have to build stronger allied ship around what are the areas that we need to address. Are we doing that? you know, in some communities I see yes in some communities not so much. Some communities are moving forward and some communities are moving backwards, but we have to create enough of a momentum moving forward because moving backward is not going to be an option in in the rate and pace of change and the.Global economy for periods of time where you had disproportionate access to technology and resources you know you you could you could you could operate in certain ways. The, the world has become flat in many respects in that in that regard. Look, the US has been a beneficiary because we, you know, you know, reap the benefits of the products and solutions that we’ve been able to sell globally, but now people have access to that.So we now have to actualize, I call it every able-bodied American to participate in the opportunity and enable them to actually create GDP, create access to additional jobs and expansion. That’s ultimately what keeps us on the front of, uh, front foot of prosperity. That’s what’s important.
19:44 spk_0
Robert, finally, obviously you’re a busy guy, you’re raising money, you’re writing books.What do you do in order to try and shut off a little bit and rejuvenate?
19:55 spk_1
That’s a great question. You know, uh, I just actually went on a wonderful trip with, with one of my sons, uh, and we went fishing for 3 days and then he got me on some roller.Posters for a couple of days which was a lot of fun but a lot of it is is connecting with people that you care about to me it’s listening to great music, listening to the thoughts of the youth, what it is that they’re interested in and gaining perspective as to where you just focus your time, energy and attention.Uh, and when people ask, you know, well, how, how do you spend that incremental moment? It’s usually listening to music and trying to plan a fly fishing trip with one of my children.
20:27 spk_0
That’s thesecond fishing answer I think we’ve gotten today. What kind of music are youlistening to right now?
20:32 spk_1
Jon Batiste is my guy. Oh, he’s just amazing. I think he will go down as the greatest musician of his generation, so I’m excited to, to participate with him in that
20:40 spk_0
that you and I are on the
20:41 spk_1
same page, outstanding
20:42 spk_0
that one. Thank youso much, Robert. I really appreciate it. Great to see you.
