How young, everyday investors convinced a top billionaire dealmaker to join them as a crypto bull
While the nation was in lockdown mode in the spring of 2020, the nation’s most successful private equity software investor found himself in Puerto Rico with nothing to do. Orlando Bravo, the billionaire chief of private equity firm Thoma Bravo, had left San Francisco to spend the first months of the pandemic on the island where he grew up.
Wandering around in flip flops on sandy stretches of Caribbean coastline on Puerto Rico’s north shore, Bravo found that many of the people he met were passionate about cryptocurrencies and eager to share their views. Without any in-person meetings to attend, Bravo spent a lot of time talking randomly to people about bitcoin
particularly around Dorado Beach, named for the Spanish word for “golden,” just 23 miles west of the capital of San Juan.
“When I’d socialize, I would come across young people who were heavily involved in crypto projects of all kinds and I learned from the ground up,” says Bravo. “This was an example for me of stopping and thinking deeper and broader about a new movement that was currently not applying to us, but I now feel will be applicable in a big way for Thoma Bravo.”
At the age of 51, Bravo runs Thoma Bravo, which has used a groundbreaking approach to software buyouts to arguably become the hottest private equity firm on the planet. He commands a portfolio of more than 50 software companies that employ 72,000 people and generate combined annual revenues of $21 billion, including control and non-control investments. In September, Thoma Bravo’s assets under management reached $91 billion, doubling in size in two years and outpacing the most recent figures from the other big private equity software and technology specialists, Vista Equity Partners ($81 billion) and Silver Lake ($88 billion).
In just the last two years, Thoma Bravo has generated an incredible $29 billion in cash and public stock value on $7 billion invested. The long-term numbers are equally impressive. The flagship fund Thoma Bravo raised in 2012 has posted a net internal rate of return of 38.8% as of Sept. 30, according to an investor. Last year, the widely followed HEC-Dow Jones ranking listed Thoma Bravo as the industry’s sixth-best performing private equity firm.
This spectacular track record has made Bravo a highly visible member of Wall Street, where many billionaire leaders of other big institutions continue to frown on cryptocurrencies, which recently carried a market capitalization of $2.2 trillion, according to CoinMarketCap.
Jamie Dimon, CEO of JPMorgan Chase & Co.,
the nation’s biggest bank, recently called bitcoin “worthless.” Paul Singer, who runs one of the largest hedge funds, has said cryptocurrencies will rank as “one of the most brilliant scams in history.” Berkshire Hathaway’s vice chairman, Charlie Munger, has called bitcoin a “currency that’s useful to kidnappers and extortionists.”
On the other hand, Bravo spent much of this past fall tweeting about his joy of cryptocurrencies. “How could you not love crypto?” Bravo tweeted on Sept. 29, when he shared a link to a talk he gave at a Wall Street conference.
He’s been on a quick pace since then on social media, firing off enthusiastic public messages about cryptocurrencies, the underlying blockchain technology that supports them, and the creation of digital tokens for secure transactions.
“A @Harvard professor doesn’t believe in #crypto because these currencies aren’t backed by the ‘trust’ of a ‘bank’ or ‘government,’ Bravo tweeted on October 26. “Amazing how some miss the whole point that cryptocurrencies are backed by something so much more valuable — a decentralized system of ultimate trust.”
Two weeks later Bravo took to Twitter again. “I was asked today how I could defend #Bitcoin since Sweden’s DG said it should be banned due to ESG. I said mining needs to move to use clean energy. In the meantime, DG should ban all banking since it emits 20x more carbon than #BTC.”
On December 8, Bravo continued voicing his bitcoin views. “Why are people still comparing Bitcoin to gold?” Bravo tweeted. “The value of #Bitcoin is the value of a whole new financial system… And anyway, who buys gold anymore? And for those that do — I hope they don’t admit it… at least not in public.”
As a U.S. territory starting in 1900 and a U.S. commonwealth since 1952, Puerto Rico is a quasi-independent archipelago located where the Caribbean Sea and Atlantic Ocean meet. It is home to roughly 3.2 million people, and has beautiful beaches and lush inland forests. A few years ago, Brock Pierce, a former child actor in the Walt Disney Co.’s Mighty Ducks movies, thought it was the perfect place to set up shop.
A digital currency pioneer who invested early in Ethereum and cofounded Tether, Pierce led a band of blockchain entrepreneurs and investors to Puerto Rico. They liked Puerto Rico’s vibe, Old San Juan’s colorful houses and cobblestone streets, and unique tax advantages that exempt residents from many U.S. taxes. The local banks seemed generally friendly to their cause. Pierce wanted to build a new cryptocurrency utopia, telling Rolling Stone in 2018 that Puerto Rico “is where you’re going to bring your wife and kids and build the New World.” Some of Pierce’s followers dubbed it Puertopia.
Bravo has never met Pierce. Born in the western Puerto Rican town of Mayagüez, Bravo speaks with a Latino accent and retains an athletic appearance from his youth as a ranked junior tennis player, which first moved him to the U.S. mainland as a teenager. During the 2020 lockdown, he thought Puerto Rico was the logical place for him to go. Bravo figured he would lay low and do some work with his Bravo Family Foundation in San Juan, taking a break from his usual home base in the San Francisco area. The foundation’s mission is to create a more equal society by promoting a rising entrepreneur program. Everywhere he went around San Juan, Bravo kept running into people working on cryptocurrency-related projects.
““When I’d socialize, I would come across young people who were heavily involved in crypto projects of all kinds and I learned from the ground up.””
Bravo said he didn’t speak to any of the more established crypto entrepreneurs, just young people he met in the summer of 2020. By that time, Puerto Rico had become a cryptocurrency hub. He started to deeply explore the ideas behind cryptocurrencies and became intrigued by the idea of decentralized autonomous organizations, or DAOs, defined as an organization represented by rules encoded as a computer program that is transparent, controlled by the organization’s members and not overseen by a central authority.
Bravo hadn’t arrived in Puerto Rico with a deep knowledge of blockchain technology. But he carried with him a tool box of knowledge from years as a dealmaker who saw the software business differently than most and profited from it. Bravo also understood database architecture and engineering.
By the late summer of 2020, he was hooked on cryptocurrencies. Bravo found it ironic that he was learning about this new technology in his native Puerto Rico, not in Silicon Valley or San Francisco, where he was always too busy going to in-person meetings all the time and generally running his private equity business.
“It happened pretty quickly because what was more exciting for me was the theme that it stands for and the possibilities of it than necessarily the underlying technology,” Bravo says. “It’s basically the creation of a system that stands for so many things that I deeply believe in: transparency, disintermediation, democratization – a financial system that works for all without so many middlemen. It’s so many things that I deeply stand for and believe in that it was like, ‘Wow’.”
Software deals and whiskey
The pandemic has not been an extended vacation for Bravo. He has been running Thoma Bravo with a sense of urgency that has redefined the speed at which the private equity business can operate. By the time Bravo returned to San Francisco from Puerto Rico in October 2020, his firm had finished raising $17.8 billion for a new flagship private equity fund. Thoma Bravo deployed those funds in new software investments in about a year – an unheard of pace in private equity circles – and quickly headed out to raise a new main fund in 2021. The firm is also raising additional fund vehicles that target smaller software companies. In total, Thoma Bravo is currently seeking to raise about $35 billion in new capital, according to market sources.
This pace of growth is not something Bravo likes to discuss. Citing disclosure regulations, a Thoma Bravo spokeswoman declined to comment on fundraising.
Bravo was very early to spot the opportunity to leverage the steady income from software companies as they moved from a model of selling shrink wrapped versions of their products like any other retailer to a subscription-based business that generates steady income. He started doing enterprise software private equity deals about 20 years ago at buyout shop Thoma Cressey. At the time, private equity firms avoided software investments because banks didn’t want to lend money collateralized by lines of code. But Bravo, Vista’s Robert Smith, and a few other firms like Hellman & Friedman, realized business software service contracts were iron-clad assets and that subscription revenue would create the most predictable of cash flows.
Thoma Cressey would become Thoma Bravo by 2008 and distinguish itself from some competitors by embracing a lighter ownership style with entrepreneurs and company founders, instead of laying down a more rigorous management practice on top of their portfolio companies. As Bravo helped establish the viability of software buyouts, most big private equity firms only dedicated small teams to the area, seeing software as just another industry. For Bravo, software was ubiquitous. It touched everything.
During the pandemic, two decades of work culminated in an explosion of deals. Among its marquee transactions in 2021, Thoma Bravo closed its purchase of real estate software company RealPage for $10.2 billion in April. In August, it wrapped up the largest software take-private deal in history with its $12.3 billion buyout of cyber security company Proofpoint. In October, Thoma Bravo completed a $6.4 billion take-private of Medallia Inc., a customer experience software company, as well as its $6.6 billion purchase of Stamps.com.
In another signature deal, Thoma Bravo last year sold cloud-based mortgage industry finance company Ellie Mae to Intercontinental Exchange ICE
for $11 billion, about 18 months after it acquired the company by reportedly putting up $2.2 billion of equity in a $3.7 billion deal.
While all this was going on, Bravo also decided to move to Miami, buying singer Phil Collins’ waterfront estate, and setting up a new Thoma Bravo office there. The other project he was working on was understanding digital currencies. Bravo approached cryptocurrencies as a business, thinking of them like a software deal. He decided to take time to learn this business and how it set itself apart.
So Bravo started setting up more Zoom calls with all the venture capital firms that he’d come to know while working for Thoma Bravo in its San Francisco office. With his firm’s big presence in the tech space, Bravo had no trouble lining up at least one Zoom call a day on the subject. Bravo lost count of the number of calls, but says they numbered more than a few dozen.
“There are so many venture capitalists that are crypto natives, that just focus on tokens and just really very, very interesting — that are in Silicon Valley,” Bravo says. “Some of them were founders of the movement. It shows you how interconnected the world is becoming in a distributed way.”
Bravo’s learning process for crypto marked a significant milestone this past summer when he sat outside Le Bilboquet restaurant on Manhattan’s Upper East Side with some friends. He ran into Gavin James Wood, the 41-year-old English computer scientist and co-creator of Ethereum, the blockchain network that supports the ether cryptocurrency, who was sitting at a nearby table. Wood is also widely recognized as a key originator of the term Web3, or Web 3.0, a decentralized Internet based on blockchain technology. Wood launched the Web3 Foundation as a non-profit behind the Polkadot distributed computing network. Bravo said the chance meeting helped him understand how much there is to do in crypto and how much more he could learn.
Wood said in an email to MarketWatch that he remembered meeting Bravo to discuss the dealmaker’s “budding” interest in crypto.
“He had a curious mind, open to the ideas that we are pursuing in Web3,” Wood said. “His experience investing in technology companies was clear, and he was excited about the potential of a new paradigm for the open internet. Our shared taste in good whiskey was also a point of conversation.”
At around that time, Thoma Bravo made its first investment in crypto technology as a firm. Up until then, Bravo had invested an undisclosed sum of his personal wealth in bitcoin.
Thoma Bravo in July joined a slew of major firms in a $900 million Series B investment round of FTX Trading Ltd., the cryptocurrency exchange led by Sam Bankman-Fried. The deal valued FTX at an astonishing $18 billion and further established Bankman-Fried as one of the wealthiest individuals in the cryptocurrency world.
Bravo describes Bankman-Fried as incredible at execution. “He combines being visionary with being a phenomenal operator,” Bravo says. “That is rare.”
Thoma Bravo announced two more investments in the space in recent weeks and it’s considering more.
On Dec. 20, the firm announced it led a $110 million Series C round of investment in Figment Inc., a blockchain infrastructure provider founded in 2018. The company fetched a $1.4 billion valuation in the investment round, which drew participation from Counterpoint Global (Morgan Stanley), Binance Labs, Mirae Asset, the parent of Fidelity Investments, Franklin Templeton and several others.
Five days earlier, Thom Bravo took part in a $350 million Series D funding round for Anchorage Digital in a deal that values the digital bank company for cryptocurrencies at more than $3 billion.
In another sign that digital currencies are increasing their hold on Wall Street, private equity behemoth KKR & Co. led the Anchorage Digital round, with participation from Goldman Sachs and BlackRock, among others. Bravo said his firm may also apply its traditional approach of doing buyout or other investments on its own without other firms in the mix to the cryptocurrency space.
‘Since we will disagree on crypto big time I have not spoken to him about it.’
This past fall, the white paper that launched bitcoin turned 13 years old, and bitcoin recently changed hands for $47,000. But Bravo says he isn’t worried about being late to the party. He believes digital currencies remain in their infancy. When talking to him about the subject, Bravo comes across like a zealot.
“First, creating a better and more efficient financial system. It will happen. It’s already happening. It’s so powerful. It really, really is,” Bravo exclaims. “Two, the ability to create a new organization and a new organizational system.”
Bravo acknowledges concerns that software and technology are replacing human workers on behalf of management. But with distributed autonomous organizations, Bravo thinks he has found a new organizational structure that can empower workers, or users, who can be paid by the profits or rise of an ecosystem.
“You don’t need management – that whole theme is so big and so empowering and so good for society,” Bravo says.
This sort of talk may seem out of place for a card-carrying member of the financial elite. JPMorgan CEO Dimon has routinely slammed cryptocurrencies. “I’m not a bitcoin supporter,” Dimon said during The Wall Street Journal CEO Council summit last May. “I have no interest in it. On the other hand, clients are interested, and I don’t tell clients what to do.”
JPMorgan has been using blockchain technology for products such as Onyx, which the bank describes as the world’s first blockchain-based platform for the exchange of value, information and digital assets. The bank is currently hiring people for its software engineering group for so-called collateral blockchain tokenization.
“Blockchain is real if we use it for certain things,” Dimon said in an interview recently. “Parts of defi [decentralized finance] are real.”
Bravo says he counts Dimon as a friend and business partner, but so far the subject of cryptocurrencies has not come up in their conversations. “I’m a huge fan of his,” Bravo says. “But since we will disagree on crypto big time, I have not spoken to him about it.”
Washington has also woken up to cryptocurrencies on a regulatory level, with an eye toward potentially collecting tax revenue from it. At a December hearing on Capitol Hill, GOP lawmakers embraced crypto as part of Web3, while Democrats worried over investor protection.
Bravo sees a role for regulators in the world of cryptocurrencies, but bats away crypto criticisms. Many people on Wall Street said he was wrong about software buyouts years ago and Bravo sees it as part of his role to hunt for the next seismic technology wave to support growth at his firm.
“Criticisms of Web 3.0 and a new financial system are just misplaced,” Bravo says. “It’s said that this is a facilitator of illegal trades. Well, I didn’t see the U.S. currency stopping any illegal trades or transactions. If you look back at when the Internet was in its infancy, I could show you so many articles saying it’s a dead concept.”