5 Big Things Bain Capital Seeks When Investing In IT Companies

From the ability to displace an incumbent to having great teams, here are the five areas Bain Capital looks at when selecting an IT company to invest in.

What Bain Capital Looks For In A Technology Company

Bain Capital’s David Humphrey (pictured) has been scouring the technology landscape for two decades choosing and searching for the right IT companies to place its bet on.

“The technology markets are as active as they’ve ever been in private equity,” said Humphrey, managing director and co-head of Bain Capital’s North American private equity business, responsible for $10 billion in technology portfolio investments.

The Boston-based global investment giant has a value-added investment philosophy aimed at taking IT companies to the next level of growth through a unique partnership.

“We feel like we bring our own approach to it in a way that can be supportive of companies and help them to grow,” said Humphrey, who is a member of the board of directors at Nutanix, Rocket Software and NortonLifeLock. “We invest in our capabilities to partner with these companies. So we have a portfolio support team of over 30 people in North America. We roll up our sleeves when we partner with our companies to support them across all elements of their technology business.”

Humphrey talked to CRN about some of the key aspects Bain Capital looks for in an IT company to potentially invest in.

High-Value Products For A Low Cost

We look for businesses who create really high value for their customers for a low cost. We look for businesses where the value that’s created for customers is many multiples of that cost customers are paying. Because that is a measure of the ROI that customers are getting from buying that software, for example, and therefore the growth opportunity we think those businesses will see. We focus on great products that solve really important problems for customers in a way that creates real high value for customers for a really low cost.

What’s an example of that?

We have a software company in our portfolio called Waystar. It does revenue cycle management for health-care providers with a cloud-based subscription. It helps health-care providers to track and manage and optimize their revenue cycle for a low cost. So it’s a really valuable proposition and a great product.

The Ability To Unseat And Displace An Incumbent

We look for real advantage relative to others. That can come in multiple forms. One is, as a result of being on very modern technology, we look at the ability to unseat and displace an incumbent. We look for those forms of advantages.

Where we believe we can help is we can take all of an [IT company’s] resources and the capabilities that we as Bain Capital have all around the world and partner with these great teams to realize the benefits of those great products and those competitive advantages.

Strong Market Position

We also look for companies that have a really strong market position, so the largest company in a given sector or a given segment of the market.

Why? Because they can invest the most in research and development and they can invest the most in sales force coverage. So they can distance themselves from what others can offer by having that scale. But scale is not always the only form of advantage that we’re looking for. [We’re also looking for businesses that have real data assets, for instance, that are valuable and that nobody else has.

Companies That Solve Problems, Have Great Teams

We look for, fundamentally, businesses that are solving those really valuable and really important problems for customers. We’re about finding companies that solve problems for their customers in a way that’s better than anyone else can.

Lastly, we look for a great team—great teams that we can partner with that we think have the opportunity to really grow and win in their markets.

Technology is a critically important sector for us. One of the important things about our firm is that we’re a broad platform around the world and help across different life stages of companies.

Subscription Sales Motion

Subscription for us isn’t something just to be achieved in and of itself for the financial reasons. Of course there’s financial benefits we think for customers as well as for the providers of the software, but also for the customer experience benefits that subscriptions can offer. It is providing software and technology more as a service with regular updates and being able to bring more innovation, more technologies and more capabilities that can be offered in connection with the core. If you can do those things, then customers can pay more as they use more technology.