March 25, 2021
Bain Capital’s technology portfolio includes a mix from market research to infrastructure tools but a significant deal last summer in hybrid cloud shows the private investment firm has its eye on how this space continues to mature.
David Humphrey, managing director in the technology, media and telecommunications vertical and co-head of Bain Capital’s North American private equity business, is responsible for some $10 billion in technology investments at Bain Capital, including last August’s $750 million investment in Nutanix. He spoke with InformationWeek about a few of the considerations that go into his investment approach and how cloud still faces much more evolution in the years to come.
What are some guiding principles that go into the direction you take and what you and Bain focus on when investing?
We were started in 1984 as a spin out of Bain & Company consulting. The basic premise at the time was, if we were good at supporting and advising businesses, we should actually invest behind them. In particular, looking for businesses that solved a really important problem for their customers, did so in a really advantaged way competitively, and had some continuous opportunity to grow.
We’ve been investing as a firm in the tech sector for a very long time. In 1989, Bain Capital’s third fund was called Bain Information Partners, a joint venture with Dunn & Bradstreet. Tech has been the largest area of investment activity for us. We now have businesses in venture capital, in discontinuous growth technology, as well as tech investing in our core private equity business.
What we look for is through that same lens: solving a really important problem. Technology is uniquely placed in the current world to be able to do that. We look for high value created for relatively low cost for the customer. When you talk about things like the cloud, it’s only accelerating the time to value that customers can realize that.
Technology is an interesting space where a really valuable competitive position isn’t necessarily just measured by where one’s market share is. Having a really advantaged product that is doing something different from incumbent competitors, and therefore in an attacker position, is really interesting so long as it’s doing that strategy in an advantaged way and it’s got a really valuable proposition for its customers.
I think with discontinuous growth there’s a lot of ways to go about that. Salesforce strategies, M&A strategies, new product strategies, and new geographies -- we see lots of these things.
With the evolution of public cloud and hybrid cloud, how do you separate the wheat from the chaff? Many past tech trends saw people tack on buzzwords for sake of attention. What gets you to pay attention?
When you think about the cloud, we’re partway through a massive computer architecting shift. Still, if you measure the portion of computing workloads that are performed in the cloud relative to on premises -- depending on how you measure you see different numbers -- it’s flipped from the minority to the majority. There’s still a long way to go. We see a huge growth tailwind associated with the cloud shift in general. It’s also changing the competitive paradigm pretty dramatically.
In a client-server world -- where so much technology that includes deployment as well as compute was happening locally, in a world where there are a small number of various scale and advantaged public cloud infrastructure providers -- that changes the competitive paradigm quite a bit. Things that might have been fragmented historically have become more consolidated.
David Humphrey, Bain Capital
We’re certainly looking for things that benefit from this shift and tailwind. It’s not always binary. We certainly see businesses that some headwinds in elements of their business and tailwinds in other elements. The judgment comes from how we can partner with those businesses to accentuate the tailwinds even more. We also look for businesses we think are going to be competitively resilient and even strengthened amidst this shift.
The closer things get to the true infrastructure layer and the true compute layer, the more likely it’s going to be able to be provided by the likes of Amazon or Microsoft or others. The more that there’s some unique functionality whether that be getting to the application layer and the business applications that surround things, or some unique capability that is really important . . . we think there’s some exciting opportunity.
It’s a fascinating problem to be confronted with because we’ve certainly seen businesses that have been upended by this shift, even if there is a lot of growth in computing.
How else might this space continue to evolve in respects to some of the incumbents? What else is emerging now that could be part of the next phases of disruption?
Like anything, you see the big players and a big shift going on and then you see pockets of where that doesn’t apply as universally and creates opportunity. You’ll see industry-specific applications of things, industries that have problems that need to be solved, heavily regulated industries. You see important application nuances.
Security is a place where we see a lot going on. There’ve been some high-profile breaches lately and you’re seeing a real shift from keeping everybody out the network paradigm to focus on identity and data. The application of machine learning and artificial intelligence more broadly is extremely powerful. We’ll see big businesses being created that can shift things around. I don’t think we’re going to see some dramatic change to computing architecture for a while. There’s supercomputing efforts going on and I’m sure there will be a huge amount of innovation going on there but there’s still going to be a big shift toward the public cloud players.
Are there are other factors you pay attention to while keeping abreast of what the current players are doing?
You’ve got big enterprises and smaller businesses and the ways all this affects them are different. A key question is, ‘Will you see big enterprises shift entirely or will you continue to see this hybrid world for the foreseeable future?’ If so, what are the implications of that. We very much believe that you will see that hybrid world for quite a long time but we’re very much on the lookout for where there are big enterprises that have not made that decision and gone more holistically towards the cloud.
Where do you feel we are in terms of cloud maturity? Early days? Adolescent years? Somewhere else?
The shift of the infrastructure is in the adolescent years and has quite a ways to go. We understand and see how that’s shifting and there’ll be more innovation. The application of and implications of all that are still in the childhood years. Once the computing writ large is so distributed and can be gathering data and information on a real-time basis so seamlessly and updating the technology and algorithms that are being deployed, human ingenuity is going to find limitless places and applications for all that. You marry that with machine learning and artificial intelligence and the world’s going to look pretty different 20, 30, 50 years from now. As an investor that’s really exciting.
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