When it comes to investors optimizing opportunities in the tech sector, one the biggest dealmakers in the private equity tech space said the cloud is king.
“This whole entire $6 trillion market cap software industry is not about a work-from-home industry. It's an industry about automating entire business processes, across entire industries worldwide,” billionaire Orlando Bravo told Yahoo Finance Live. “What we saw coming out and starting through the pandemic was that corporate CEOs, said let's spend more and more quickly on going digital, and in automating our processes and our functions. And that trend today is the strongest we've ever seen.”
While the rapid shift to a work-from-home model, because of the coronavirus pandemic, has been a boon to tech companies like Zoom (ZM) and Slack (WORK), the real story, according to Bravo, the founder and managing partner at Thoma Bravo, is the software and cloud enterprises that power everyday technology and make companies run.
“Our investors have asked us over 20 years, every time we go fundraising, they ask, Is this the right time to get into software? And our answer is, whenever you can buy recurring revenue streams that are growing at double digits, where you're an integral part of the business function, where the value that you're providing your customers so far exceed your price. And when you can have a chance at really improving the operations of those companies, it's always a good time to be investing,” said Bravo, who runs one of the largest software and tech focused private equity firms in the country.
Thoma Bravo’s recent round of fundraising broke records by raising more than $22.8 billion across three funds—Thoma Bravo Fund XIV ($17.8 billion), Thoma Bravo Discover Fund III ( $3.9 billion), and Thoma Bravo Explore Fund ($1.1 billion).
Fresh off his panel at the Greenwich Economic Forum, Bravo outlined why he thinks investing in the cloud space is a good bet, pointing to companies that are creating solutions to highly complex and high labor input cost problems.
“When you see one of those companies that is creating so much value, solving a new big problem that has that double digit, annual recurring revenue growth, it's all been about the ability of the management team to execute,” he said.
And where specifically does he see future upside in the tech industry?
Overlooked sectors, said Bravo, which he defines as sectors that are less well understood, either because they're moving so quickly, or there are some big technology changes that have happened.
“Overall, right now there are two of them. First is all infrastructure services that have to do with operating and connecting and ensuring the uptime of cloud environments. That market is so big, it's so significant, and it's complex enough that we feel the value of that market is being a bit overlooked,” he said. “Cybersecurity continues to change. Every year there’s something different so that whole segment is just a wonderfully, and in our view, overlooked space.”
Yvette Killian is a producer for Yahoo Finance’s On The Move. Follow her on Twitter at @yvette_killian