David H. Wasserman, Recognize: Why Digital Services is Private Equity's Most Exciting Opportunity
David H. Wasserman is Co-Founder and Managing Partner of Recognize, a New York based private equity firm investing in digital services businesses at the intersection of services and software. Founded in 2020 alongside Francisco D'Souza and Charles Phillips, former CEOs of Cognizant and Infor respectively, Recognize was built on a simple but contrarian insight — that private equity had largely ignored the space where technology services meets IP, and that the next generation of enterprise technology winners would live exactly there.
In this episode David shares the origin story of Recognize, born from a chance conversation at a celebration dinner in 2019 and stress tested almost immediately by COVID. He explains why three people who had already made it in their careers felt compelled to start something from scratch, what surprised them most about the journey so far and how the tectonic shifts in AI are reshaping both their portfolio and their investment thesis. David also gives a genuinely candid take on the SaaS disruption debate, drawing on an e-commerce analogy that reframes the whole conversation. And he closes with career lessons that have stayed with him throughout his career.
Key themes from this conversation:
- The serendipitous origin story of Recognize and how COVID became a catalyst not a blocker
- Why digital services was the overlooked gap between software and venture investing in 2019
- How AI is reshaping the tech stack and what that means for where Recognize invests
- The SaaS disruption debate, roadkill versus resilience and why complexity is the deciding factor
- Building culture from within, lessons from a basketball coach
- The difference between edge and energy as a leader
- Why the thin line between success and failure is the most important career lesson David ever received
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Transcript
We're very focused, right?
Speaker A:We've picked one singular idea.
Speaker A:We want to be the best investors and business builders around what we call digital services.
Speaker A:We want to build Architect, a firm that would be a great catalyst for the founders that we invest in.
Speaker A:Technology is changing so fast, business models therefore changing so fast that you really got to be thoughtful about how you invest and how you build businesses that you know you have to have innovation at the core.
Speaker A:Trying as investors and business builders to stay ahead of that innovation is definitely the thing that I think keeps all of us up at night.
Speaker B:Hello and welcome to reedcast, a podcast series sponsored by Reed Partners featuring founders and thought leaders in the private markets industry.
Speaker B:I'm your host Scott Church, a co founder and senior partner at Reed, and I am very happy to be welcoming David Wasserman of Rekognize as our interviewee today.
Speaker B:David, thanks for being here.
Speaker A:Scott, thanks so much for having me.
Speaker B:I'll cover David's background, which is pretty impressive.
Speaker B: equity firm he established in: Speaker B:David spent nearly 30 years as a private equity investor, including over 20 years at Clayton, Dublier and Rice where he served on the firm's investment and management committees and led the technology and services vertical.
Speaker B:Prior to joining CD&R, David worked at Goldman Sachs in the principal investment area and as a strategy consultant for Monitor company.
Speaker B:He started his professional career as an economics and US History teacher.
Speaker B:Found that very interesting as well as a basketball coach at an international high school.
Speaker B:We may have to go into the relevance of basketball coaching to your current position.
Speaker B:David serves on several nonprofit boards including Focus for a Future, the UJA foundation of New York where he's Chair of the Private equity division and as an investor in the Atlanta Hawks.
Speaker B:He earned an MBA from Harvard Business School and did his undergrad at Amherst College.
Speaker B:In terms of the leadership team David created, recognize with Charles Phillips and Frank D', Souza, both who brought established and distinguished careers as CEOs of technology businesses.
Speaker B:Charles was CEO and Chairman of Infor, an enterprise applications company and prior to that was President and Director of Oracle Corporation, while Frank had co founded Cognizant Technology Solutions where he served as CEO and Vice Chairman and held a variety of other senior management positions there.
Speaker B:The total team at Recognized today numbers some 30 professionals.
Speaker B:Clearly the whole Recognized leadership team had already made it in their careers, so to speak.
Speaker B:David, I guess my first question to you is what motivated you and your co founders to, to set up a new firm in the first place?
Speaker A:That's a great question, Scott.
Speaker A:The origin story of recognize is a story a little bit of serendipity in life and the power of different perspectives.
Speaker A:And I guess three people who were just motivated to go do something different from a serendipity standpoint.
Speaker A:Frank, Charles and I, we all had relationships with each other, but it wasn't like we were plotting this crime for the last five years.
Speaker A:Frank retired after an incredibly distinguished career at Cognizant, where he was co founder of Cognizant and then longtime CEO of Cognizant and built that business into a $16 billion enterprise value, $16 billion in revenue business with $40 billion of enterprise value, some 300,000 people.
Speaker A:So he had this magnificent career.
Speaker A:And Charles, as you said, not only was he CEO of Infor, one of the great software turnarounds in private equity history, but before that he was president of Oracle and did a lot of the acquisition for Oracle and he was also the leading research analyst on Wall street for enterprise software.
Speaker A:So both those guys had had really incredibly distinguished careers.
Speaker A:And as you said, I had spent 30 years in private equity and it was a little bit of happenstance, as I said, serendipity, that we all started talking about this idea.
Speaker A:Frank and I started talking about it.
Speaker A:Frank, we knew each other.
Speaker A:We had this funny encounter at an off site where I had just sold a business Transact.
Speaker A:I invited him to come to the business and come to the celebration event.
Speaker A:And we kind of went off and started talking about what he might do next and maybe what I would join him on.
Speaker A:And he talked about this idea of creating the next generation of digital services businesses.
Speaker A:He had created one of the leading tech services businesses in the world.
Speaker A:But what he saw was that as technology continued to change, there was an opportunity to create the next generation of players.
Speaker A: that started in the spring of: Speaker A:We then ran the idea past Charles.
Speaker A: arles was just in the fall of: Speaker A:And we ran the idea past him and this time software investors were kings.
Speaker A:So like we felt if we told him about, well, we had this idea of investing in the next generation of digital services business, he'd say, no, no, no, I'm a software guy.
Speaker A:But his eyes kind of lit up a little bit and said, you know, I think we could productize the services business.
Speaker A:Which was kind of a new idea, meaning bring IP to services.
Speaker A:And so both of them were kind of interested from their perspectives.
Speaker A:Frank from creating these next generation digital services leaders, Charles from productizing the businesses.
Speaker A:And I sat there, investor having, as you said, built the technology services division or vertical for CD&R, after a long career at the firm, felt like we needed to move more into technology investing.
Speaker A:And I thought that there was a big opportunity to invest in technology services in general.
Speaker A:I just felt like it was a space that private equity had ignored and that there was an opportunity to go create a very differentiated firm.
Speaker A:And so I had that perspective, that investor lens.
Speaker A:Charles and Frank had their software and services lens.
Speaker A: her, this idea in the fall of: Speaker A:And then Covid hit.
Speaker A:Yeah, Covid hit in March.
Speaker A:And we all were thinking, well, is this really what we want to do?
Speaker A:And it gave us a chance to really step back.
Speaker A: And by the summer of: Speaker A:We could really build something different and special, be a catalyst for these next generation of digital services companies.
Speaker A:And that's how we got going.
Speaker A:And I think you asked, well, why do we do it?
Speaker A:I think all three of us love the game.
Speaker A:We just love to compete.
Speaker A:I think we were all motivated to build something special and different.
Speaker A:And I think we also all love coaching and serving as catalysts to management teams.
Speaker A:And we thought that the recognized platform was going to be an amazing platform to help build businesses and back founders and help catalyze businesses.
Speaker B:Super interesting.
Speaker B:Well, I guess that leads me to another question.
Speaker B:Maybe you could expand a bit about what it is that you're doing and recognize that is different from, I don't know, either other tech investment firms or software investment firms.
Speaker B:What did you see as the opportunity to innovate, if you will?
Speaker A: ll, you know, at the time, in: Speaker A:So there are a lot of those, the Thoma Bravos or the Vistas or, you know, all the.
Speaker A:And all the large scale firms had created, you know, software arms, or you're going to be a venture investor and you want to invest in venture enterprise tech through the venture funds.
Speaker A:And we thought those were kind of interesting ways to gain exposure, but they were very competitive.
Speaker A:People were paying very high valuations in both the software and the venture markets to gain exposure enterprise tech.
Speaker A:And we thought there was a different way to do it through this, what we would say digital services era, which was playing the services businesses, but at the intersection of services and software, so services with ip.
Speaker A:And we felt like that was just a more interesting way to build this exposure.
Speaker A:One, it was less competitive so we weren't competing against all the great firms that had been established over the last 20 years in software.
Speaker A:Two, we felt like we had a real advantage and there were a bunch of founder owned businesses in this space that we could go after and help them build.
Speaker A:And we thought we could build something that'd be very attractive to those vendors, founders.
Speaker A:And three, we just felt like over time the world was going to come our way.
Speaker A:Now, I don't want to say we were that precedent, but we saw this opportunity and we saw this coming.
Speaker A:Now the irony at the time was most investors didn't know what we were doing.
Speaker A:So we had spent a lot of time trying to convince people like, no, this is an attractive way to gain exposure to technology and enterprise technology.
Speaker A:And I think it's proven right.
Speaker B:Have you seen, I guess, the market?
Speaker B:You're seeing the market move your way?
Speaker A:Yeah, we've definitely seen the market move our way, which is positive and negative.
Speaker A:It's positive in that it gives you a sense of, okay, we saw something.
Speaker A:But on the other hand, we now have software investors coming to our space.
Speaker A:We have venture investors coming into our space.
Speaker A:And you've seen great case studies in our space.
Speaker A:Now Palantir would be a great example of a business that sits in the intersection of software and services and provides very powerful, powerful solutions to the enterprise.
Speaker A:And we think we're building some great businesses, smaller businesses than Palantir, but great businesses that are doing the same.
Speaker B:Yeah.
Speaker B:So I guess you're past five years into it now.
Speaker B:Is there anything that's surprised you about the journey so far?
Speaker A:A lot.
Speaker A:A lot.
Speaker A:Look, I think we've had, there have been some really positive surprises.
Speaker A:The team that we've assembled at Recognize has been really amazing and we really have lost very few people.
Speaker A:We've been incredibly lucky on hiring and we've hired a lot of people who had one, who had never worked together before and two, who hadn't done their roles before.
Speaker A:So they've really grown into their roles and that's been really fun to see.
Speaker A:Two, we've had great support from our investor base, our limited partners and that's been nice.
Speaker A:Three, you know, we've been, we got amazing CEOs so we've been able to back some just incredible founders and management Teams.
Speaker A:And so that's been really fun.
Speaker A:But you know, on the other side, I'd say starting a firm from scratch is hard.
Speaker B:Yeah.
Speaker A:And you know, I sure for all three of us, we all felt like we'd had these successful careers, we were successful leaders.
Speaker A:But it can be very humbling to start a firm from scratch.
Speaker A:Your feet are fully on the pavement and you're dealing with at the beginning, you're dealing with everything from office space to 401ks.
Speaker A:And you got to bring a team together, which we have.
Speaker A:We hired really talented people.
Speaker A:But you realize cultures don't get formed on day one.
Speaker A:So this whole idea of how do you bring a team together, how do you get real strategic focus around an opportunity and then you got to make good investments, you got to hopefully get some exits, you got to get lucky too, to some extent.
Speaker A:But that's hard to start.
Speaker A:And it gives me great admiration for all these founders that we back now to realize how hard it is to just do something from scratch.
Speaker B:Absolutely.
Speaker B:Well, speaking about the firm and kind of the team firm building, maybe I'll skip over to that side and we can.
Speaker B:I might circle back to investment themes and opportunity market trends, but I think our listeners would be really interested in thinking about how or hearing about how you thought about building the firm.
Speaker B:Kind of the firm architecture, you know, what went into the design of Recognize in terms of the organization and did you seek to innovate that in any way compared to your prior positions?
Speaker A:Yeah, you know, I was very fortunate to have a long career at CDNR and to start my career at Goldman Sachs.
Speaker A:Both were great places to work.
Speaker A:And I definitely learned a lot of things at those places that I've tried to bring to Recognize.
Speaker A:Maybe the most important one is this real integration of investors and operators or business leaders like Frank and Charles, who are now great investors too.
Speaker A:But they come from an operating background.
Speaker A:I learned that first when I was at Goldman Sachs.
Speaker A:Actually one of my very first jobs at Goldman Sachs, I was assigned to work with of all ironies today, given what we're talking about, a newspaper executive and this great guy, Frank Shepard.
Speaker A:And we went and bought community newspapers.
Speaker A:I know that's hard to believe, but this was in the 90s and it gave me the understanding of the power of working alongside an operator, someone who really had deep, deep domain knowledge and a deep understanding of the business.
Speaker A:And it was part of the reason when I left Goldman, I joined CD&R because of this merger they had with investors and operators that Joe had created at the Beginning of the firm with Marty Dublair and Gene Clayton, who are both.
Speaker A:Marty and Gene were both operators, and Joe was a finance guy, a little like recognize and.
Speaker A:And I grew up there working alongside these really talented operators, Jack Welch and so many other incredible operators at the time.
Speaker A:And so clearly, the one thing I've taken with me is this idea of to build a great investment firm if you can really meld investing and operating in a powerful way that's hugely differentiated at every part of the investment chain.
Speaker A:And I can go into that more detail.
Speaker A:What's different about Rekognize than the places I've worked before are a couple things.
Speaker A:One is we're very focused.
Speaker A:We've picked one singular idea.
Speaker A:We want to be the best investors and business builders around what we call digital services.
Speaker A:We spend all our time and our team spent all our time around that singular idea.
Speaker A:And we build all the capabilities and the processes in the firm from sourcing to.
Speaker A:To evaluating businesses to value creation all around that singular idea.
Speaker A:That's very different from where I came from.
Speaker A:And I think that's powerful in this very competitive investment world that we live today to have to be incredibly focused.
Speaker A:The other difference is that we really try to sit at the edge of innovation now.
Speaker A:We're not venture investors.
Speaker A:We don't want to take massive risk.
Speaker A:But.
Speaker A:But what I've learned in my career a little bit from my newspaper example or other examples I could give you of my investments in Kinko's or Hertz, that the world technology is changing so fast, business models therefore changing so fast, that you really got to be thoughtful about how you invest and how you build businesses today even more so.
Speaker A:When I started in this business 30 years ago, you could invest in newspapers at that time and still make money.
Speaker A:You obviously can't do that today.
Speaker A:And so it's, you know, you have to have innovation at the core.
Speaker A:You have to always be thinking about where the world is going.
Speaker A:And that's kind of a very core, fundamental foundation of our firm.
Speaker B:Thinking about the team.
Speaker B:And maybe this is where your basketball coaching comes into play and getting everybody on the same page and working in the same direction.
Speaker B:Have you thought much about culture?
Speaker B:I mean, maybe you could talk a little bit about the kind of culture that you.
Speaker B:You were seeking to establish at Recognize and what your North Star is there.
Speaker A:Yeah, I mean, there's.
Speaker A:There's.
Speaker A:You know, as I said, one of the things I learned from my basketball coach was, you know, culture really gets built from within.
Speaker A:You know, like, you know, you can Make a lot of pronouncements from the top, but it gets built, like, from the team.
Speaker A:Yeah.
Speaker A:And.
Speaker A:But yeah, there are many critical things that we want in our culture.
Speaker A:You know, one is, is a sense of ownership.
Speaker A:And I'd learned that at CDNR when I first joined the firm in the late 90s.
Speaker A:I think Joe Rice did an amazing job of kind of instilling in all of us a sense of real ownership in the firm.
Speaker A:Because you're making big decisions, when you're making investment decisions or the critical decisions we make, you got to really have a sense of ownership over those decisions.
Speaker A:Two is to be entrepreneurial.
Speaker A:We need to have a very entrepreneurial culture.
Speaker A:We're out all the time trying to find the next great company.
Speaker A:We need everyone in the firm to feel like they're real entrepreneur, is going out and trying to discover new things.
Speaker A:And we've seen it.
Speaker A:We've seen our team has done amazing stuff in that way.
Speaker A:I'd say three, we want to create a firm that's really collaborative, but we got to be able to test each other.
Speaker A:We're making hard.
Speaker A:As I said before, we're making hard decisions.
Speaker A:You know, one of the.
Speaker A: Clayton D' Euler in the early: Speaker A:You know, and I use that with the team sometimes.
Speaker A:Like, we want to be able to check each other up against the boards, but, you know, we're not taking off our gloves and having fights.
Speaker A:Right.
Speaker A:So we got to create a very collaborative, team oriented culture, but one that we're willing to really challenge one another on.
Speaker A:And, you know, and then I go back to the final one of, like, innovation.
Speaker A:We always have to be thinking about, like, where the world's going.
Speaker A:Everybody in the organization has to constantly be kind of testing not like what tomorrow look like, but what yesterday looked like, but what is tomorrow gonna look like.
Speaker A:And that's really, really critical for our culture.
Speaker A:And the final thing we talk about each other is teamwork is so critical.
Speaker A:Back to this basketball question you asked me before.
Speaker A:And, you know, I always say the ultimate demonstration of teamwork is the ability to root for one another.
Speaker B:Yeah.
Speaker A:You know, like, people use team.
Speaker A:Oh, yeah.
Speaker A:Like, let's, let's, let's, you know, be teammates and stuff.
Speaker A:But when you can really root for one another, like, when you can see the US Hockey team, like, so happy and so happy for each other, like, that's when you realize you got incredible teamwork.
Speaker B:Yeah.
Speaker B:Celebrating your.
Speaker B:Your collective success.
Speaker A:Yes.
Speaker B:Maybe back into the market trends that we're seeing and risks, threats, opportunities.
Speaker B:I guess we couldn't have this conversation without talking about AI.
Speaker B:Everyone's talking about AI, but maybe just from your perspective, how are the rapid advances in AI impacting your opportunity set and how you invest at Recognize?
Speaker A:Yeah, well, it's something we think about all the time.
Speaker A:Interestingly, as I said, when we started the firm we thought, okay, there's this really interesting place to invest at the intersection of services and ip.
Speaker A:I think that was a very smart decision at the time given where the world worked now.
Speaker A: oing to come on the scenes in: Speaker A:Obviously we knew machine learning and the beginnings of AI, we weren't naive to that.
Speaker A: t the change that happened in: Speaker A:We saw some of that coming and so we invested around cloud infrastructure that was turned out business that we sold to IBM, that was very, a good investment.
Speaker A:We invested in Blend which is now an AI services business.
Speaker A:We invested in Cubica that does great data work around, you know, data bricks and other things.
Speaker A:And so we've, we've really thought about it.
Speaker A:You know, like we saw, we saw some elements of it coming.
Speaker A:But you know, there are Teutonic shift going on right now.
Speaker A:I mean massive shifts.
Speaker A:If you just think about, you compare.
Speaker A: Enterprise Tech Today versus: Speaker A:The market value of enterprise tech has probably doubled, maybe even tripled.
Speaker A:But where the growth has come from is fascinating.
Speaker A: lf a trillion dollars back in: Speaker A:Right?
Speaker A:The hyperscalers were big businesses back then, but now they're massive businesses and Google and AWS and Microsoft.
Speaker A:So that whole movement to the cloud and then you think about the foundational models, it barely existed.
Speaker A: e foundational models back in: Speaker A:Now it's like, you know, well over a trillion dollars.
Speaker A:Right?
Speaker A:And at the same time, services and software have kind of come up and down in that space.
Speaker A:And so you got to really think about, well, where in that service software landscape do you want to invest?
Speaker A:Right?
Speaker A:You can't just invest the index.
Speaker A:You got to go find the exciting places to invest.
Speaker A:There have been really teutonic shifts and I Think it's forced us to really think about how do we want to invest in the space.
Speaker A:We often talk about being smart, about how do we invest up and down the tech stack.
Speaker A:If you think about what we're trying to do at Rekognize, the opportunity that we saw, Frank saw it, Charles saw it, was that all the innovation and complexity that's happening in the tech stack and all the enterprises need to adopt technology was going to allow for these new set of companies to exist, to bridge that innovation and technology into the enterprise.
Speaker A:If you believe the enterprise is going to keep buying technology to create competitive advantages and you believe that there's going to be this innovation, you need companies in the middle that translate that innovation.
Speaker A:That was really the idea behind Recognize.
Speaker A:Now what we've had to think about is, okay, well, with the changes in the tech stack and actually more of the value in the tech stack now being at the lower part of the tech stack, right.
Speaker A:Than the upper part.
Speaker A:Meaning like at the chips, at the data centers, at the data level, et cetera.
Speaker A:Right.
Speaker A:We gotta make sure that our businesses also play in that space.
Speaker A:And so we, if you look at our, you know, like if you look at the deals we've done now in fund one and starting in fund two, we've played up and down that tech stack.
Speaker A:We have businesses that work at the data level, we have businesses that work at the cyber level, we have businesses that work at the data infrastructure level, like Sprout.
Speaker A:And so we really thought about how do we make sure that we're serving the most important needs of the enterprise and we're solving the innovation that's happening on the other side.
Speaker A:Very cool.
Speaker B:I'd love your thoughts on the topic that's been reverberating for the last couple weeks.
Speaker B:This sasspocalypse, the AI basically disrupting SaaS and software business models.
Speaker B:Where does that go?
Speaker B:And you know, we've seen the recent market jitters and you guys must talk a lot about, about that.
Speaker A:A lot.
Speaker B:Just wondering what your thoughts are.
Speaker A:Well, my first thought is you should do a podcast with Charles and Frank, who spent a lot of time thinking about this topic and Charles recently wrote a white paper on it.
Speaker A:Look, I don't want to predict exactly where that's going.
Speaker A:I think as you said, software has kind of been the greatly trained of private equity for the last 20 years.
Speaker A:I mean, there have been some massive firms created on the back of software investing.
Speaker A:It's probably been the biggest space that our industry has invested in.
Speaker A:There's no Doubt that AI and you think about the miles at Anthropic and that that OpenAI and Google are coming out with now are clearly going to be disruptive to the SaaS model.
Speaker A:Now how disruptive?
Speaker A:It's kind of hard to tell.
Speaker A:Charles in his white paper talks about levels of complexity of SaaS.
Speaker A:There's low complexity SaaS out there and there's super high complexity SaaS out there.
Speaker A:And that.
Speaker A:So not all SaaS is the same, not all software is the same out in the marketplace in that the more complex players are probably going to win.
Speaker A: nd what happened in the early: Speaker A:Obviously Amazon and E commerce in general wiped out a lot of retailers.
Speaker A:So it just like my guess is that there's a chance that what we're seeing now that AI is going to wipe out some kind of simplified software business.
Speaker A:Now it's going to take time.
Speaker A:It's not going to happen overnight, but it's going to take time.
Speaker A:But on the other hand, there's some great retailers that capitalized on it.
Speaker A:It's not like Walmart got wiped out.
Speaker A:It's not like Costco got wiped out.
Speaker A:There's some, Sephora got wiped out.
Speaker A:There are retailers who figured out how to find their, protect their niche to, to be multichannel omnichannel.
Speaker A:And so my guess is you're going to see that same dynamic, that there's going to be some roadkill.
Speaker A: e hit very high valuations in: Speaker A:Right when we started our firm, we started our firm right into this time of incredibly high valuations.
Speaker A:And, and those valuations, when people have uncertainty about the future, terminal values are probably going to come down.
Speaker A:Businesses aren't going to trade at 20 times revenue.
Speaker A:They're going to trade at 5 times revenue.
Speaker A:That's going to be complicated.
Speaker A:But do I think the businesses are going to go away overnight?
Speaker A:No, I don't think that.
Speaker A:I think most of these businesses, especially the ones that have deep enterprise roots, enterprises just can't rip them out.
Speaker A:But will they start buying a few less licenses?
Speaker A:Might they negotiate a little bit harder in the license?
Speaker A:Maybe for some of them, but other of them are going to use AI to their advantage.
Speaker A:They're going to have such great competitive moats, they're going to have access to such great data that they're going to be able to build AI into their own platforms and just like Walmart built E Commerce into their own platform.
Speaker A:So I think we're at the very early stages.
Speaker A:People love to as, you know, markets like swing hard, you know, and right now we were probably in a period of too much exuberance.
Speaker A: u know, we had that moment in: Speaker A:That's when we doubled down on our investing.
Speaker A:But then, you know, since then the markets have been ripping and you know, there's always something that's going to cause some uncertainty.
Speaker A:And this is, you know, AI is definitely going to cause a lot of uncertainty around a lot of business models right now.
Speaker A:Yeah, for sure.
Speaker B:Maybe.
Speaker B:Just thinking about the TAM for you guys, are there any other observations you have about subsectors, areas for growth that you're excited about or themes that you're pursuing?
Speaker A:Yeah, I mean, going back to what I was saying earlier about just thinking about where are the most attractive places to play between the innovation and the tech stack and the enterprise and how do we play?
Speaker A:As you said, this massive AI wave that's coming through, we think about there are probably four or five themes that we're really focused on.
Speaker A:One is investing in businesses that are AI architects architecting AI for the enterprise.
Speaker A:Our business blend or cubica are really AI architects in the marketplace.
Speaker A:That's a very interesting way to play because every enterprise trying to figure out how do I build and adopt EJEN is another example of that of AI.
Speaker A:The second way we think about it is can we create AI enabled outsourcing businesses?
Speaker A:So Media Mint 2X, those are businesses where we're really trying to take a very specific niche.
Speaker A:Part of enterprise outsourcing, ad operations, B2B marketing, and can we be the AI enabler in that space?
Speaker A:So that's another way to play.
Speaker A:Third is cyber.
Speaker A:You know, AI is going to create a lot more cyber threats.
Speaker A:Our early investment in SDG around cyber is another interesting way to play kind of this AI wave.
Speaker A:And then the final one, as I mentioned earlier, is digital infrastructure.
Speaker A:So at the end of 24, we invested in a business called Sprout because we wanted to gain exposure to digital infrastructure.
Speaker A:What Sprout does is it manages the IT lifecycle for large organizations, often data center oriented organizations.
Speaker A:So you think about all the stuff going into the data center.
Speaker A:Well, at some point that stuff's got to come out Too.
Speaker A:Right.
Speaker A:As they build new ones, like the new Nvidia chips come in, the old Nvidia chips go out or the new server CPU servers come in and the old CPU servers come out and sprout does all that backend logistics, which is a very powerful way to play all the infrastructure build going on in, in the digital world right now.
Speaker A:Yeah.
Speaker B:Tons of opportunity.
Speaker A:Yeah.
Speaker B:Are there any threats or risks that keep you up?
Speaker A:Yeah, all the time.
Speaker A:You know, as I, I say, you know, as I joked earlier about, you know, newspapers and Kinkos and Hertz, like business models and use cases right now are changing so rapidly.
Speaker A:I mean, there's just, it's happening so fast every day, like, you know, a different business model and use cases coming out.
Speaker A:You know, my kids send them to me all the time.
Speaker A:You know, my 20 year old, you know, my 18 to 29 year old, four kids, like, they're constantly like sharing with me, dad, did you see this?
Speaker A:Did you see that?
Speaker A:And so the innovation is happening so fast.
Speaker A:And so, you know, trying as investors and business builders to stay ahead of that innovation is definitely the thing that I think keeps all of us up at night.
Speaker A:And we're constantly like, if you were with us, if you were on our teams at night, you would see this stream of like, you know, you know, Charles sending something, Frank sending something, you know, Mike or Josh responding to something, Jack or Alex or will someone else like coming up with something.
Speaker A:Because we're all constantly trying to think about how do we stay ahead of this curve.
Speaker A:Yeah.
Speaker A:Which is fun, you know, it's exciting.
Speaker A:And I think we sit the way we invest gives us some flexibility around it.
Speaker A:But as I said before, you know, we face competitors all the time thinking.
Speaker B:About the same thing, maybe pivoting a bit to leadership.
Speaker B:And I'm thinking about your experience in your prior positions and just your observations of other leaders in the industry.
Speaker B:Is there anybody that's really impressed you or that you've tried to model your leadership style after?
Speaker A:Yeah, I mean, I've been fortunate.
Speaker A:I've had great rabbis, both people that I've worked for, but also just people in the industry.
Speaker A:I had lunch with one today who are just great mentors for me.
Speaker A:And I kind of watch how they lead.
Speaker A:My first boss at Goldman Sachs was a guy, Rich Friedman.
Speaker A:Rich was a great investor and you could just see he was passionate, but he was also dispassionate about his deals.
Speaker A:He just wanted to make great investments.
Speaker A:And, and so there was a lot to learn from my time there, you know, Joe Rice, you know, he's a great.
Speaker A:Was a great cultural leader and a great spiritual leader in our firm.
Speaker A:And so you learn a lot by just watching someone who can, you know, has great skills of kind of perseverance and humility.
Speaker A:You know, I've been blessed to be around great operators.
Speaker A:Frank and Charles are amazing operators.
Speaker A:You know, I had a chance, as I mentioned earlier, to, you know, work closely with Jack Welch guys like Chuck Ames at cdnr.
Speaker A:I mean, these guys were like really talented guys and they, you know, they taught you different things.
Speaker A:They taught you, you know, focusing on the most important thing, making just sure everyone was focused on the most important set of issues and that you were organized to go deal with those issues.
Speaker A:Like that's always a really critical thing in business.
Speaker A:So, yes, I've been very fortunate in having great mentors.
Speaker B:Maybe just carrying out your leadership role at Rekognize.
Speaker B:You can't be everywhere all at once.
Speaker B:How do you think about time allocation and where you spend your time?
Speaker B:That's going to be the most impactful for results.
Speaker A:As I said earlier, we have a great team at recognize, so I'm very fortunate in that respect.
Speaker A:I think about my role, I think Charles and Frank the same as how do we just provide leverage to the team?
Speaker A:You know, I think typically you think about, well, the team's supposed to provide leverage for us, but I think given how talented our team is, our role is really to figure out how do we provide leverage to them.
Speaker A:So, you know, how can I, you know, Debbie, who runs IR for us, you know, like she can do her job completely, but are there times when I can go help her and provide some leverage for her in a situation that would be helpful and let her be a little more effective?
Speaker A:And our deal teams, Mike, Josh, Alex, Jack, Will, they're super talented folks.
Speaker A:But are there times when I can help just provide some leverage on a new management meeting or I'm thinking about a piece of analytics or a newbot value creation.
Speaker A:Frank and Charles are constantly working with him to provide leverage for him.
Speaker A:That's how I think we tend to think about just helping that team be great.
Speaker B:And I guess as a leader, co founder of the firm, not everybody enjoys speaking truth to power.
Speaker B:How do you make sure that you're getting the right advice and the right information to help you make good decisions?
Speaker A:Yeah.
Speaker A:One is we run a very flat firm.
Speaker A:We're not Charles, Frank, Charles, an ex Marine.
Speaker A:None of us are.
Speaker A:Are hierarchical people.
Speaker A:And so, you know, we, we run a very flat firm.
Speaker A:Everyone's in investment committee we listen to the, you know, the junior most guy on the team, like what his opinion is.
Speaker A:Everyone, everyone's opinion counts in the room.
Speaker A:And, and so, you know, we try to stay just very grounded and close to the decision making.
Speaker A:I always say, you know, in our business, each fund we're making, I don't know, 30 or 40 critical decisions.
Speaker A:You know, we're making a buy decision, we're making a leadership decision and we're making a sell decision.
Speaker A:And you got to get those decisions right.
Speaker A:So you got to like just make sure you've created a culture in your organization that you can really try to focus on those critical decisions.
Speaker A:You can get the best facts on the table, you can get the best discussions and perspectives around those facts and you can try to make the right decision.
Speaker A:And so I think that's, you know, just having a very flat organization where everyone feels like they have the right to speak up and express their views.
Speaker A:Making sure you're talking to everyone on the team and you're listening to everyone all the time and you're just trying to think about what is it that's going to help us make the best decision.
Speaker B:Yeah.
Speaker B:Feeds back into culture.
Speaker A:Yeah.
Speaker B:Well, David, you mentioned being able to work with such great CEOs in the business and founders of new businesses.
Speaker B:What is it that makes founders, top founders want to work with rekognize?
Speaker A:You know, first I think it's the people.
Speaker A:I mean obviously having Frank and Charles as part of the firm, both of those guys have been incredible business builders.
Speaker A:Frank took a business from zero to $16 billion.
Speaker A:So that's a Michael Jordan like feat or maybe greater.
Speaker A:And Charles has done some of the great turnaround at Infor and helped build Oracle.
Speaker A:So I think they, I think that gives us a big advantage.
Speaker A:But also we've built a firm and this was very much our vision, Frank's vision.
Speaker A:When we started, we wanted to architect a firm that would be a great catalyst for the founders that we invested behind and therefore and would solve their greatest pain points.
Speaker A:If you think about all the businesses we invest in have similar business models.
Speaker A:They're all selling to the enterprise.
Speaker A:So they're all trying to get one more great enterprise sale.
Speaker A:And so we have to be.
Speaker A:One key part of our value creation capability is to be great at helping companies develop their go to market strategies and enterprise sales.
Speaker A:All of our businesses deliver some type of technology solution to the enterprise using some combination of people, human labor and digital labor.
Speaker A:So we got to be great at doing that and all of our businesses benefit from our network.
Speaker A:So Charles runs a CIO network, Frank runs a CEO network.
Speaker A:We spend a lot of time with critical partners in our space, be it Google or Microsoft or databricks or now OpenAI or Anthropic.
Speaker A:And having those relationships again just helps amplify the capabilities of our businesses and helps our founders solve their problems.
Speaker A:Then finally we're, we help them do ma.
Speaker A:So when you think about if you're a founder and you've built a 50 or $100 million business and you're trying to figure out how do you get to 200 or 300 or $400 million business?
Speaker A:Well, your big problems are how do I sell the next set of enterprise customers?
Speaker A:How do I improve my delivery and build agentic capabilities?
Speaker A:How do I shine my light broader in a tech ecosystem, be it Google or databricks or whatever, how do I do M and A and how do I attract great talent?
Speaker A:And those are things that we at Rekognize are completely focused on trying to help our founders.
Speaker B:Yeah.
Speaker B:Really catalytic for them.
Speaker A:Yes.
Speaker B:Maybe related to that, what's the biggest blind spot you've ever encountered in running a deal or a team or business?
Speaker B:And how did you discover it and fix it?
Speaker A:Yeah, I think, you know, early in my career, I think one of the transitions I made, a couple of the transitions I made, one was, you know, you, when you're young, you know, you want to, you want to feel like you're the smartest guy in the room.
Speaker A:And I think this is a mistake.
Speaker A:Private equity, young private equity people make all the time is that you play gotcha.
Speaker A:You know, like, you just want to, like, you want to ask the toughest questions to the management team.
Speaker A:You want to find the mistake in the model you want to like.
Speaker A:And I learned over time that's not really effective.
Speaker A:The role between a private equity executive and management team or founder is always kind of complicated just to begin with.
Speaker A:And if that's the way you're kind of acting, that's not gonna be helpful in that relationship.
Speaker A:You gotta build trust based relationships with people.
Speaker A:And so therefore you can't play that like you gotta listen, you gotta and figure out how do you really build great trust based relationships with someone who's, you know, working their tail off to build their business.
Speaker A:So that's one I'd say that's kind of related to.
Speaker A:Another thing that I think about a lot is, you know, most people in our business have a lot of edge.
Speaker B:Yes.
Speaker A:I mean it's just like the nature of like our industry, you know, it's often a win lose game and there's like this edginess of finance, private equity guys.
Speaker A:But I've also learned over time that you need edge, but you need to be able to energize.
Speaker A:And if your edge is off putting, well, that's no good.
Speaker A:You got to be able to energize the people around you.
Speaker A:So I try to think a lot more about a little less edge, a little more energized.
Speaker A:Now I'm sure I mix that up at times, but as a career learning, that's something I think about the difference between when I was in my 30s, late 30s, doing stuff to now I'm almost 60, doing in this game.
Speaker B:That's really good advice.
Speaker B:Yeah, yeah, I can see that.
Speaker B:You know, we all deal in complex businesses.
Speaker B:You're in a very complex industry.
Speaker B:How do you go about getting a better understanding of something, a subject, a situation, market development that you haven't dealt with before?
Speaker A:Yeah, well, now we have AI, right?
Speaker A:So we can just sit there, we can just, we can just talk to Gemini or ChatGPT or Claude and we can just have conversations.
Speaker A:And it's really an amazing tool and it's a much bigger tool than just that.
Speaker A:But in terms of getting smart, of getting knowledge, I mean this is obviously the risk we're all worried about right now is that LLMs have so much more knowledge than we ever have.
Speaker A:But if you want to try to get knowledge, you can get knowledge out of an LLM.
Speaker A:It's not always 100% right, I've learned, but it's very powerful.
Speaker A:So that's one.
Speaker A:And then, you know, just speaking to people.
Speaker A:I mean our teams are so great, you know, so just spending time with either the management teams or our own teams are recognized and trying to really understand an issue.
Speaker A:You know, if I want to understand a cyber issue, I'll go talk to Jack.
Speaker A:If I want to understand something complex around, you know, you know, the industrial tech space, I'll go talk to Alex, you know, like if I want to understand digital infrastructure, I'll go talk to Will, you know, like, you know, so it's, we got a lot of talent just like going and listening and asking questions.
Speaker A:Being curious is I think the most important thing.
Speaker B:Can you recall an experience or single moment that made you rethink what success looks like?
Speaker A:Well, you know, maybe the best one is recognize.
Speaker A:And you know, I think it's interesting for Charles Frank myself, like we'd all had big careers, you know, we were, did big buyouts.
Speaker A:You know, Frank ran a, you know, Frank was, ran one of the biggest companies and you know, was at the very top of the CEO community.
Speaker A:And Charles too, you know, was president of Oracle and he was CEO of Infor and he's the board of American Express.
Speaker A:And you know, like when we started recognize we're a little, small, little private equity firm, you know, it wasn't like I was getting invited on the Goldman Sachs ski trip anymore.
Speaker A:That surely wasn't happening.
Speaker A:You know, I wasn't paying, paying big fees to the street or I wasn't, you know, like nobody was calling me up and telling me how great we were and this, that and the other thing.
Speaker A:So, you know, it made you rethink about what was important.
Speaker A:And as I said, you know, building, you know, it didn't matter about size and scale doing the biggest deals, it was doing cool deals.
Speaker A:It was helping build great companies.
Speaker A:It was getting close to founders.
Speaker A:It was watching a team of 30 people kind of come together and grow and you know, made you really think about.
Speaker A:Well that's, that's, you know, at the end of the day that stuff's really.
Speaker A:The other stuff can be heady and it can be exciting, you know, especially when you're younger.
Speaker A:But like really building something from scratch, seeing a team come together, those are the things that are really powerful.
Speaker B:Thinking of your earlier comment about Edge versus Energizer, maybe that's the answer.
Speaker B:But I wonder if you have another answer to this question.
Speaker B:What advice would you give your younger self looking back on your career?
Speaker B:David?
Speaker A:Yeah, I don't know.
Speaker A:There are two sayings that my guys hear all the time.
Speaker A:You know, one came from Joe Rice early in my career when he said to me, you know, David, don't forget there's a thin line between success and failure.
Speaker A:And it was his way of kind of saying, stay even and humble.
Speaker A:Don't think you're too good when you're above the line and don't think you're too bad when you're below the line.
Speaker A:And I think that's very good advice.
Speaker A:This business.
Speaker A:There are times when deals work and you think you're a genius.
Speaker A:There are times when deals don't work and you think you're a total idiot and you gotta just kinda keep plugging away and be humble about it and just kind of persevere through it.
Speaker A:So that was from Joe, incredible advice.
Speaker A:There was one of the early operating guys at CDNR was this incredible guy, Chuck Ames.
Speaker A:And he had this saying, you got to knock off a few gas stations as you're planning your perfect bank robbery.
Speaker A:And for whatever reason, that thing is always, that saying has always resonated with me because what it says to me is like, you got to dig in, you got to go attack a problem, but you also have to be patient.
Speaker A:You can't think about like, oh, I'm going to get the whole thing done at once.
Speaker A:You can't, you can't do the perfect bank robbery.
Speaker A:You just gotta go off and knock off the gas stations and you gotta think about, okay, you know, if you have Butch Cassidy and the Sundance Kid or whatever, but you gotta think about how do I get some of this stuff done as I'm planning, like this big strategic idea, how do I just kind of get deals done?
Speaker A:And so we talk about that at recognize all the time that we want to be the very best investor in our space.
Speaker A:That's our goal.
Speaker A:But we're only going to get there if we go do a number of great deals, we build great processes in the firm, we build the best team in the industry.
Speaker A:We got to just take each step.
Speaker A:We build the best value creation capabilities, we build the best sourcing capabilities.
Speaker A:We got to think about how do we just keep knocking this stuff off.
Speaker A:And then at the end we're going to realize we've built something really special.
Speaker B:Yeah, well, I think that's a great place to end.
Speaker B:Thank you, David.
Speaker B:This has been a really interesting conversation.
Speaker B:Really appreciate your time.
Speaker A:Thanks, Scott.
Speaker A:Really appreciate it too.
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