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Behind Private Equity’s Hunger for Tech Deals

Opening Day Of The World Economic Forum (WEF) 2016Opening Day Of The World Economic Forum (WEF) 2016
Robert Smith, chairman and chief executive officer of Vista Equity Partners.Simon Dawson—Bloomberg via Getty Images

Years ago I wrote about one of the first private equity firms dedicated to tech investments, Silver Lake Partners. Technology had been considered a poor bet for private equity, which traditionally eschews investments where ideas outweigh physical assets. Silver Lake scored big with investments in Seagate, Skype, Alibaba, and others. Now, according to an outstanding feature in the Financial Times, the firm is raising a $15 billion fund.

That same FT article shined a light on a less well-known and equally tech-focused PE shop, Vista Equity Partners, which is almost as old as Silver Lake but trains its sights more narrowly on software companies.

Years ago software would have been the last target of private equity. But Vista founder Robert Smith correctly identified the sector for its sticky cash flows. Once customers start using software aimed at businesses, it is rather difficult to stop. Cost-cutting, a typical PE tool, doesn’t work so well in software. Vista’s preferred techniques are a list of 100 best practices it expects its acquired companies to follow and a system of encouraging those companies to share ideas and resources with each other.

Incidentally, the CEO of one Vista-owned company, Steve Lucas of Marketo, attended our April 6 Brainstorm Tech walk-up dinner in San Francisco and wrote this stimulating commentary about the future of voice, one of the topics we discussed that evening.

These are exciting times.

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Perhaps the most contentious and yet fascinating topic of our time is health care. The young administration in Washington failed quickly to reform the previous gang’s health insurance policy scheme. Precision medicine, however it’s paid for, promises to be a game changer for the ages. Fast-moving information technology is making itself felt like never before in the slower-moving and highly regulated world of drugs and medical devices.

All this and more will be the focus of conversation at the second Fortune Brainstorm Health conference in San Diego on May 2-3. We will have star power as well: Former Vice President Joe Biden will discuss his cancer “moonshot” effort—and perhaps a little politics too.