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- Robert Smith: Building an Elite Investment Firm & Navigating the Tech Revolution
Robert Smith: Building an Elite Investment Firm & Navigating the Tech Revolution
Muhammad Abedi
February 20, 2025
Image of Robert F. Smith, Chairman and CEO at Vista Equity Partners.
Vista is a software focused private equity firm with $100 billion in assets under management.
This article is Part 2 of a two-part series.
In Part 1, I explored Vista Equity Partners' investment strategy. I analyzed how Robert F. Smith invests in and creates value for software companies.
In Part 2, I shift the focus towards:
1) how Vista built a world-class organization and,
2) how Smith views emerging trends in technology such as Generative AI (Gen AI).
Smith is the founder and chairman of Vista Equity Partners, one of the world's top private equity firms. Vista adopts a singular focus on enterprise software and has around $100 billion in assets under management.
I've spent hours listening to Smith speak across multiple interviews so I can analyze his insights. Most of Smith's quotes come from interviews recorded between 2020 and 2025. The podcasts I've listened to for my research are the following:
Capital Allocators
Invest Like The Best
Dry Powder
The Money Maze Podcast
I also listened to a fireside chat with Robert Smith, which was filmed during the 2025 Global Alts conference in Miami.
Let's dive in.
I break down this post into 2 sections.
1. Building a World-Class Investment Firm
The Importance of Talent and Culture
"One of the biggest constraints, of course, is finding capable people. We always talk about this war for talent in our space. 7.5 billion people on the planet, there's only 29 million of us who write code for a living. I mean it's the most productive tool out there. It impacts every business."
"I look at my investment team in VCG and our operating team and the longevity and what they've done and their capacity to learn. And we do a lot of what I call building from the draft and not the trade. We bring in people from various backgrounds and teach and train and develop them as opposed, 'Oh, let's go find some highflier from another firm to now come be a part of what it is that we do.' We think that, that builds a culture of accountability. We think it builds a culture of excellence and high performance and one that ultimately leads to a kind of long-term economic benefit for the entire ecosystem of Vista."
"…And you've got to have a team that is willing to invest in the development of others, not just people who report to them…So having that sort of a collegial environment and shared responsibilities and shared, in many cases, economic outcomes by funds is one of the ways [we] like to design the way that we compensate our team to get that sort of a behavioral pattern."
Author's Comment: Based on my experience, world-class investors invest heavily in talent development. Vista is an exemplar of this. They also prefer to develop their talent in-house rather than acquire them from the outside.
What happens when you develop talent in-house and give that talent bigger opportunities? You will build a capable, dedicated, and loyal team.
Tools and Centers of Excellence
"We have a whole set of tools and systems that enable us to bring, what I call, a unique way of developing talent and capabilities. We have these centers of excellence."
"Where do you invest in your centers of excellence capacity to expand the market opportunity for our businesses? Because we're seeing an accelerated demand for the products that our companies sell. So we have to have people to support that growth."
Author's Comment: Tools and systems are typically seen as operational necessities. The reality is that they can be much more than that. At Vista, tools and systems are used to enable innovation and talent development. These centers serve as hubs of knowledge that not only improve execution but also help Vista respond to the demands of the market. Investing in talent and infrastructure at this level gives Vista a competitive advantage relative to both private equity and technology firms.
Designing a Winning System
"Over half of the deals that we did were non-processed deals, meaning we had access when no one in the market did. People came to us because they went to one of the other founders that we did deals with and said, 'Okay, here's where I am. Who should I talk to?'"
"They're [current and past Vista portfolio companies] like, 'Yes, let me tell you how Vista accelerated my corporate maturity. Let me tell you how Vista accelerated the maturity of my management team. Let me tell you how Vista accelerated our growth rate or our operational profit or our entry into this market or our entry into this different geography. Let me tell you how they did that.' When you cut through all that, I'm still amazed at this. But of the deals where there were other people involved, almost 60% of them we got at a lower pricing than when someone else offered."
"And 98 times out of 100, they'll say, we want to do business with you because we see how you enhance the value of not only our business from a financial perspective, but create a business that actually is much more durable and much more reliable to our customer base and actually has the potential to frankly be around for decades after we get through working with the management team on some of these enhancements."
Author's Comment: Vista has engineered a self-reinforcing system that constantly strengthens its competitive edge:
Vista focuses exclusively on software. As Vista deepens its domain expertise with every deal —> Vista's and it's portfolio companies team's become stronger over time.
The more businesses Vista acquires and improves —> the better its talent, processes, and operational best practices become.
The stronger Vista's capabilities become —> the more other software founders and executives want to work with Vista.
Vista has engineered a flywheel that continuously drives improvement and success. This system gives Vista access to high-quality deals before they hit the open market.
Vista has a reputation for operational excellence and leadership development. This makes it the preferred buyer for many founders. Vista doesn't rely on competitive bidding as many investors do. Their network of past and present executives acts as a referral engine that brings top-tier deals directly to them.
This trust-based system allows Vista to acquire companies at lower prices than other bidders while remaining the preferred choice for sellers.
Compensation and Aligning Incentives
"We start off with our investment teams, for instance. They're in a pool, AXO structure, and we create wonderful incentives for them, which include ability to participate in the sale, carried interest with our associates and analysts, which I think is somewhat unique in the industry."
Author's Comment: Vista aligns incentives at all levels to motivate its people to drive long-term success.
Vista's incentives align better with its investors when employee compensation is performance-based.
Vista allows its analysts and associates to participate in carried interest. This is a stark contrast to industry norms. Typically, vice presidents or principals are the first roles that can receive carry.
This model fosters a culture of ownership and encourages long-term thinking. It helps attract and retain top talent who are fully invested in the firm's success.
Selecting and Training Talent
"We have some which are aptitude, personality profile, and those elements give us a sense as to is that individual in the right seat for the task that's ahead of them. And so you can have somebody who is a brilliant person, but actually working in the wrong role for that organization or has the wrong sort of touch to be in customer service, the wrong sort of touch to be in sales. And so the way I like to think about it is more of a lock and key approach."
"One of the things we do with our portfolio companies, we spend massive amounts of resources ensuring they have the ability to train from interns to entry-level hires, to mid-level professionals, to C-suite professionals, to the CEO. We do the exact same thing within Vista, and we spend, I think, a disproportionate amount of time relative to what I hear other competitors do in the marketplace or other private equity firms do to train our people."
"I know a well-trained executive will give you exponentially more capacity and insights and efficacy than just having kind of more people that you don't formally train. So those are a couple of examples. Training we think is critically important."
"How do we leverage distance learning for our executives? One of the few organizations that anyone in the companies can actually take in nanodegrees and artificial intelligence through our Vista University construct. We believe in educating our workforce and ensuring that they have a path for progression..."
Author's Comment: These quotes remind me of a key insight from the book Good to Great. The book is famous for its study of top-performing companies to uncover what drives lasting business success. One important finding is that great leaders prioritize building strong teams. They focus on getting the right people in the right roles. Those people can then move the business toward its desired destination.
Vista takes a deliberate and structured approach to talent development. This happens at all levels and not just for executives. To ensure the right people are in the right 'seats', Vista uses aptitude tests to match candidates' personalities with the demands of the role.
Vista also invests heavily in training. They spend more time and effort than their competitors to develop everyone in their ecosystem— from interns to executives.
Vista understands the leverage a well-trained executive has on business outcomes. Even a small increase in an executive's capabilities can lead to a step-change in performance.
Vista offers online learning programs through its formal education platform, Vista University. Employees can even earn nano-degrees in cutting-edge fields like artificial intelligence. That's how they can remain at the forefront of innovation.
2. Technological Change and Trends
Data: The Second Order Effect of Software
"I call it the second order effect of enterprise software, which is data. The analytics of that data is in its infancy. And that is where the actual true expansion of productivity will now come. I do think there's a lot of opportunity set there. I think it is orders of magnitude bigger than what we've seen in the productivity to date…"
"In many cases, you look at some of these businesses that have multibillion-dollar valuations, all they really did, in some cases, was to digitize a manual workflow… But did they really bring any insights or start to create predictive analysis? That is just now starting. That's why I talk about the data that now has been digitized across these systems is now accessible. And then you can start to implement algorithmic systems on those to now make it predictive and a little more accurate and, in some cases, now reach forward and saying, 'Here's where you ought to spend your time.' Or how do you now bring in 2 or 3 of those systems and platforms together so that it's not just one system of record, i.e., what your salesperson put in, but also starts to evaluate what your customers are actually doing every day. What are their buying and spending patterns? And that confluence brings some insights into that."
"The IOT, Internet of Things, these devices that are all connected, these laptops, computers, phones, cameras, all those things now have some computing capacity or unable to become a part of that web. Well, when you look at all of that, you start building applications, application software, you start to see the ROI benefits, the benefits of utilizing more software to actually make your businesses more efficient. Every business on the planet now is saying, how do I become more efficient?"
Author's Comment: Data is a byproduct of enterprise software and holds immense untapped value. The first wave of software focused on digitizing manual workflows and processes. The next major transformation comes from leveraging data to generate predictive insights. Companies that move beyond simple digitization and apply advanced algorithms will unlock new levels of productivity and efficiency.
The rise of the Internet of Things (IoT) accelerates this shift. Millions of connected devices generate constant streams of underutilized data. Companies that successfully harness this data to automate processes and extract meaningful insights will create massive value.
Software Opportunities in the East
"...now that we have distributed computing power globally...the fact of the matter is for the largest economies in the world actually don't have defined enterprise software layers. That's China, it's Japan, it is India and the Asian Peninsula. They don't have defined enterprise software."
Author's Comment: Smith was asked whether he considered diversifying beyond software. He spoke about the massive untapped opportunity in enterprise software outside of North America and Europe. This international opportunity is far more compelling than shifting focus away from software.
The U.S. and Europe have well-defined software ecosystems. Markets like China, Japan, and India have less developed software ecosystems. Because distributed computing power is expanding globally, these regions will see a rapid adoption of enterprise software. The next wave of software leaders within these regions will likely come from those who can
1) navigate the complexities of these markets
2) capitalize on the growing demand for digital transformation.
How The Generative AI Ecosystem Will Develop
"It [Generative AI] is the next big thing. It is going to be interesting to see how investors play it. In a real high level, there's going to be three waves of this. First, of course, the value is going to inure to the benefit of the hardware providers, which you're seeing…the second wave, it'll inure to the benefit of the superscalers, right? So, this will be the Microsoft, AWS, the Oracles and Googles, et cetera, and then Alibaba's and all those sort of folks…
…And then the third wave will ultimately be to those who are utilizing that capacity effectively in the markets, which they sell their products. And that's going to be an enormous disruptive activity really across every industry. So, it is going to play out over many, many years. I think he or she who gets there first will have a short-term massive advantage. But then I think there's going to be an equalization over time."
Author's Comment: Smith outlines a three-wave progression for how Generative AI (Gen AI) will create value over time.
Hardware providers like Nvidia will benefit first as demand surges for AI chips and infrastructure.
Infrastructure providers like Microsoft, AWS, and Google will capture the second wave by offering AI-driven platforms and services.
Software companies that effectively integrate Gen AI into their products and workflows will drive the third wave of adoption. This wave will be the most transformative.
Smith believes that the first movers of Gen AI may gain a short-term competitive edge. He suggests that market forces will eventually drive the market toward an equilibrium.
Smith says this pattern is not new. It has existed when any transformative digital technology has been introduced over the past century.
Generative AI Requirements for Enterprises vs. Consumers
"You know, so you look at the [business] application I just showed you… we don't need a rack of [Nvidia] H100s to do that, okay?...Consumer is very different—in the enterprise, you usually have a unique set of outcomes that can be defined for the most part. And so, you're looking at high frequency and utility to enable that outcome to come faster, to lower cost to the provider of that solution set. And so, no, I don't need the creativity of 50,000 H100s in order to solve a property and casualty insurance claim, you see?"
"I am still of the belief that those who are utilizing the capacity to capture advantage and utility, as opposed to necessarily coming up with the AGI state, have a massive amount of opportunity they can take advantage of, which is where we're clearly focused."
"…the business economy doesn't need necessarily the capacity that has already been planned for. And I know of $1.3 trillion of CapEx spend for this infrastructure. And you know, you can do the math…the average business activity doesn't need a fraction of that. Now, don't get me wrong—business will evolve, and we may have higher utility rates in utilization. And then, you have to balance out against the cost…"
Author's Comment: Consumer-facing AI often requires massive computing power for creative and open-ended tasks. Enterprise AI's requirements are typically not as extensive. Enterprise software is designed for specific, well-defined outcomes. They don't need the same level of complexity as Gen AI products for consumers.
A business doesn't need an entire rack of Nvidia H100 GPUs (chips) to process an insurance claim or financial transaction. It simply needs an optimized AI model that delivers predictable and actionable insights.
Smith also points out that while there is massive planned infrastructure spending for AI (over $1.3 trillion in CapEx), most businesses won't require a fraction of that capacity. The real opportunity is to leverage AI for practical business applications that improve defined workflows and decision-making.
Vista's focus is on utilizing AI effectively within specific business contexts. Vista is not interested in developing the next AGI breakthrough.
Generating More Value from Customer Data
"…you can now create a completely different product and deliver a use case to them and say, 'Here's the use case that's actually more productive for you…'"
"This is one of our companies—I think this one's Gainsight. You know, spectacular company, great CEO, great leader. And part of what we've been doing with that business is, okay, how do you Gen-enable an organization so that all the data in and around a customer can be more effectively managed by the customer service [AI] agent.
"…you now can enable your customers to identify where, you know, they're missing issues, change in tone, change in sentiment, as opposed to just someone saying, "Oh, I'm not interested in that product." [AI]…will highlight that we need to do something and create some action. And of course, we have a next generation of that [AI] that says, 'Let's actually create the intervention that can be Gen-initiated,' which can be an email, a note, a tone, or something of that sort."
"So, if you just think about the implications of that for all customer support, customer services, where you can now deflect 90% of the customer service calls using an agent with a higher degree of satisfaction, with a high degree of resolution, there's massive implications as to what that leads to."
Author's Comment: Generative AI (Gen AI) is transforming customer interactions by making better use of customer data. Instead of just responding to support requests, AI can proactively identify issues, detect sentiment changes, and automate resolutions. This can have a huge impact on operational efficiency and customer satisfaction.
Smith gives the example of one of Vista's portfolio companies in the fitness technology space. The company allows users to book workout sessions across different gyms. If a customer arrives at a class and finds that their spot was given away, they might call customer service to complain or request a refund. Initially, the company's CEO told Smith that AI could deflect 40% of those support calls with a 98% resolution rate. Within two months, AI-driven automation improved deflection rates to 60%, and the CEO believed they could soon reach 90%. All this can happen while improving customer satisfaction scores (NPS)!
This shift has massive implications for enterprise software. If AI can automate the resolution of 90% of customer service calls while delivering better outcomes, businesses can massively grow support operations without increasing costs.
Changing Software Business Models with Agentic AI
"…the natural extension is how do you move from hosted or SaaS to agentic? That pivot is a critical pivot for the enterprise. In some cases…that pivot will eliminate certain of the seats that you priced against, but the utility will go up. So, there has to be an evolution of a new business model, which is what we literally are working on today. How do you price that to value? How do you capture the fair share of value for your—in our case, our companies, our stakeholders, which are our investors? And that is where the puck is going."
Author's Comment: Agentic AI is software that can autonomously take action, make decisions, and complete tasks without constant human input. (The word "agentic" comes from "agent"). Unlike traditional software, which requires users to manually interact with it, agentic systems operate on their own. This shift has been made possible by cloud computing and advancements in AI.
The move to agentic software is expected to disrupt traditional software pricing models. It challenges the seat-based pricing structure that many SaaS companies depend on. If AI agents take over tasks previously performed by humans, then charging per user won't make sense. Instead, software companies must develop new pricing strategies that reflect the value AI delivers rather than the number of users.
Vista is already working on defining these next-generation pricing models. They need to ensure that their portfolio companies capture their fair share of value as AI reshapes the enterprise software industry.
The Impact of Generative AI on Vista's Portfolio Companies
"...of course, Gen AI becomes a risk for any company you're about to buy if it is occurring in their marketplaces, and either if they're not the leaders and the followers or not touching at all. And how do you underwrite to that? How do you create frameworks and how do you establish best practices in the underwriting is kind of the second piece of this. And of course, the third piece of it is how do we leverage it internally at Vista, and using that to capture additional economic opportunity in our own infrastructure and the way that we deliver our best practices, the way that we enhance the value creation across our portfolio companies.
So it is a complex approach to what I think again is going to be a fundamentally disruptive technology across all industries, including the private equity industry. And if you haven't put thought into it and put structure around that thought and put resources around it, I think it's going to be very challenging for one to really participate in this market."
"I like to tell our portfolio companies, you know, first thing you have to have sovereignty and dominion over your data. And then you can think about applications of various LLM models to leverage that, depending upon if you're creating new products, new solutions, or leveraging it to evaluate a competitive position.
And what we've done, just to give you a sense, you know, I formed a Gen AI Council, which has, I think, we now have 14 or so of our CEOs, who are all implementing solutions."
"…you have to have sovereignty and dominion over the workflows and the data in order to enable this to work to your benefit. If you don't, then you can think about any other large-scale, even small-scale LLM out there, can train on your workflows, can train on your data, and deliver products ultimately to your customer set…that creates a dampening to the economic value that can be captured by the enterprise if you do not have sovereignty and dominion over the workflows and the data."
Author's Comment: Generative AI is forcing Vista to rethink key processes in its investment strategy.
Vista is re-evaluating its underwriting process. When assessing potential acquisitions, Vista must determine how AI is reshaping a specific software market vertical or segment. Vista needs to assess whether a target company is leading or lagging in AI adoption relative to its peers. Given the rapid evolution and uncertainty of AI, underwriting deals in this environment is more complex than ever.
As always, Smith is applying an engineer's mindset to a problem. He talks about developing frameworks and best practices to help Vista systematically assess AI's impact on businesses. By doing this, Vista can make better investment decisions despite the high level of uncertainty.
AI is pushing Vista to take a proactive approach within its own firm and across its portfolio companies. AI isn't just reshaping enterprise software - it is also set to disrupt private equity itself. Smith says that people and companies who don't invest in understanding AI will be left behind.
Smith emphasizes the importance of having the right data infrastructure to fully leverage AI. Companies that don't control their data are at risk of third-party solutions capturing the value from their underutilized data. By ensuring full ownership of its data, Vista's portfolio companies can maximize the economic value they capture from AI.
Trends in Deal Sourcing and Capital Markets
"Those founder-led companies need capital. And often, you know, if they have VCs and VCs right now, a lot of them are risk-off or they're moving to Gen AI and the growth equity folks are somewhat hobbled because a lot of them put their capital work at the high end of the market and trying to work their way through. But some of them are fundamentally good companies, they need capital."
"…What we are seeing is the strategic buyers of our companies have accelerated in their interest, their activity, their pace….the strategics are back, the confidence is there, the pipelines are full, and we should be expecting a busy year 2025."
"when you're in a process of making change and adopting new technologies, you want to embrace accelerants that can really accelerate and catalyze change in your organization. And doing add-on acquisitions or mergers with our enterprise software companies, I think, is an effective way to do it."
Author's Comment: Venture capital firms tend to chase hot trends. Right now, many VCs are shifting their focus towards AI investments. As a result, high-quality enterprise software companies are struggling to secure additional funding from VCs. This creates an opportunity for private equity firms like Vista, which can step in to buy or invest in strong but neglected software businesses.
At the same time, strategic buyers are returning to the market following the SaaS downturn that started at the end of 2021. I believe the rapid change in the tech environment is a prime reason for this. Technology shifts create windows where new entrants can gain an edge over large incumbents. Large tech companies often turn to M&A during these times to snap up assets and talent that could otherwise threaten their business.
The explosion of AI and software innovation means Vista's portfolio companies need to move fast to stay ahead. One way to accelerate growth and adaptation is through add-on acquisitions. This allows companies to scale faster and integrate new technologies to strengthen their market position.
Cyber-Attacks: The Big Risk to Progress
"...if you continue to have those sort of skirmishes and activity in the cyber world that are state-sponsored, well, obviously, it can lead to some very drastic actions. But frankly, it can lead to more bifurcation, trifurcation of the tech stack, which would actually slow down the growth for everyone. That interoperability dynamic we have all benefited from for the last 30 or 40 years is not something we should take for granted, which I think we are at this point. …You and I are across the planet right now and probably communicating on three or four different systems. And we don't know that."
Author's Comment: Cybersecurity poses a fundamental risk to the progress of global technology. This is because modern software relies on high levels of interoperability to work so easily. But more interoperability = more vulnerability.
Smith points out that even something as simple as a Zoom call depends on at least three or four different systems working together. Most people don't realize this. Seamless integration between systems has driven the growth of software and international digital commerce.
However, the continued pace of technological innovation is not guaranteed. If cyber threats continue to escalate, we risk moving toward a fragmented digital ecosystem. This would result in different regions or countries developing their own incompatible technology stacks. Even within countries, software companies will have to sacrifice interoperability for security. This would slow down innovation and make cross-border business operations far more difficult.
Cybersecurity is critical because it preserves the foundation that enables innovation to thrive. Yet, AI and quantum computing are rapidly making legacy cybersecurity systems obsolete. The threat of cyber warfare and the fragmentation of the global tech ecosystem has never been higher.
Want to know how Robert Smith invests in and improves enterprise software businesses? Check out part one of this 2 part series here.
If you’re interested in learning more about why B2B software is one of the best business models in the world, check out my deep dive here.
I plan to write more about technology trends, investing in tech, and building digital businesses. If there’s a specific topic you’d like me to cover, reach out and let me know!