FORTUNE — Thoma Bravo has become one of the busiest private equity firms in the tech space, investing around $1 billion over each of the past three years. Today the San Francisco-based firm announced that it has closed its eleventh fund at $3.65 billion. We spent some time on the phone with Thoma Bravo co-founder and managing partner Orlando Bravo to talk about the fund, and how he’s navigating sky-high tech prices. What follows is an edited transcript of our conversation:
FORTUNE: You set out to raise $2.5 billion, but ended up 46% higher at $3.65 billion. Why raise so much more than you thought you needed?
Orlando Bravo: We set the target very early on and agreed on a hard cap of $3.65 billion with our advisory committee. We then started doing some very large deals that were working increasingly well, and felt comfortable increasing the target but not going past the hard cap — even though we were 2 times oversubscribed on the hard cap.
Your firm’s areas of focus — software and tech-enabled services — have been among the top beneficiaries of the bull market. Are you worried that means you’re now overpaying for companies?
I don’t know of many sectors that are cheap right now, but I don’t dispute that tech has been one of the big winners. We’re not beta investors. We invest in companies where we see room for operational improvements and where acquisitions can change the business’ trajectory. For us the most important thing is to find and buy an asset where management can work with us to make the business better, rather than trying to time the market to low or high. In fact, we’ve done some of our best deals just before the financial crisis. For example, we bought Hyland Software literally at the peak in 2006, when it had $20 million in EBITDA. It’s now at over $100 million in EBITDA with 15% organic growth, and should become our best deal in Fund VIII.
Are you able to successfully compete with strategics right now, particularly given their stock prices?
No. If a strategic wants it, we’re going to lose. So I think we’ve developed really good instincts knowing which companies strategics are and aren’t going to pursue. If during a process we get a good hint that a strategic is interested, we usually back away and spend our time elsewhere.
The nice thing about strategics in tech, though, is that they come and go. The move based on their own priorities, not based on available assets. For example, in 2010 we paid around $500 million to buy SONICWall. At the time, Dell didn’t want it. Then 18 months later it made sense for Dell for a number of reasons, and they paid us $1.25 billion for it.
We’ve seen a recent IPO market slowdown, including for tech issuers. Does this worry you?
All of our liquidity events in tech have been sales to strategics or other private equity firms or dividends. No IPOs. The reason really is that, even when the IPO market is very strong, it doesn’t provide as much value to our LPs as we could get elsewhere. We can’t cash out for a significant number of quarters, plus you often have to under-lever the balance sheet and lose control. Where it has affected us negatively, though, is that there have been a number of companies choosing the IPO route that we’d like to buy. We’re maybe beginning to see that crack a bit and, if so, we could maybe get involved with those companies.
So you see yourself — and maybe other private equity firms — becoming active in acquiring VC-backed companies?
Big time. We all really hoped that was going to happen 10 years ago and it never did. Venture firms would hold onto their companies even for 15 years if they needed to. But in the last two years it’s begun to open up, and we’ve actually done three of them: Telestream, Empirix and Tripeire. Part of it probably is that there weren’t too many buyout firms buying tech companies 10 years ago.
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