Welcome back to the Alt Goes Mainstream podcast.
Today’s episode is about mining for investment success in enterprise software by going “an inch wide and a mile deep” with someone who is one of the industry’s most prolific private equity technology investors.
We sat down with Nic Humphries in Hg’s London office. Nic is the Senior Partner and Executive Chairman of Hg and Head of the firm’s Saturn fund.
Hg, one of the top 10 largest PE firms globally based on the PEI300 ranking, has built an impressive investment engine focused on mission-critical enterprise software. The firm has built a portfolio that is a “transatlantic ecosystem of software and services businesses” — representing over $180B in collective enterprise value across its 55 portfolio companies.
Nic is responsible for Hg’s strategy, management, and governance. On the investing side, Nic focuses on larger software investments that provide daily-use mission critical applications for accountants, tax / compliance professionals, and designers / engineers / scientists. He has brought his electrical engineering background to bear to go a “mile deep” into a category where Hg has become an unquestioned market leader.
Nic balances being both a detail-oriented specialist with a vision for both the enterprise software industry and Hg as a firm. We had a fascinating discussion about enterprise software investing, how to create European software giants, applying AI to make companies more efficient, and much more.
We covered:
The origin story of Hg.
How Hg grew into one of the industry’s leading software focused private equity firms.
How an engineering mindset has helped Nic become a leading investor.
Why Hg focuses on mission-critical enterprise software and why it’s a compelling investment thesis.
Why enterprise software investing can be considered a low volatility investment strategy and how Hg has delivered consistent returns to investors.
How to effectively manage exits and DPI.
Why Europe, why now?
How AI could impact technology and services businesses.
Thanks Nic for coming on the show to share your wisdom and expertise about enterprise software and private markets.
Clip #1: Unprecedented portfolio consistency.
Clip #2: The structural shift in private markets.
Clip #3: The AI platform shift and cost revolution.
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Show Notes
00:00 Introduction to our Sponsor, Juniper Square
01:37 Welcome to the Alt Goes Mainstream Podcast
04:07 Nic Humphries' Background
04:54 Bringing an Engineering Mindset to Investing
05:24 Long-Term Business Thinking
06:11 Enterprise Software Investment Strategy
06:58 Growth Factors in SMB Market
09:21 Impact of AI on Enterprise Software
09:51 Platform Shifts in Technology
11:30 Adapting to AI in Business
12:36 Mission Critical Software and Market Dynamics
15:28 Embedding Products and Services
18:03 Organic Growth vs. Acquisitions
21:32 Geographical Expansion Strategies
22:28 Challenges of Expanding in Europe
24:00 Underwriting for Long-Term Success
24:18 Management Teams and Expansion
26:59 Jurisdictional Differences in Payroll Software
27:44 Investing in Market Leaders
29:35 Enterprise Software Market Size
30:53 Software's Ubiquity in Business
33:33 Hg's Investment Strategy
39:31 Consistency in Returns
41:38 Understanding Recurring Revenues
42:28 The Importance of Discipline in Investing
43:21 Learning from Past Mistakes
45:11 Maintaining Team Excitement and Focus
47:18 The Role of Realization Committees
48:43 Continuous Improvement Culture
49:45 The Importance of Early Cash Returns
51:04 Exit Strategies and Realization Committees
52:40 Re-underwriting Investments
54:50 AI's Impact on Software Development
56:28 The Rule of 40 and AI's Potential
56:54 Investing in AI: Startups vs. Established Businesses
58:20 Hg's Growth Strategy
01:02:11 Specializing in B2B Back Office Software
01:04:07 Segmenting Investment Funds by Scale
01:05:59 Expanding into the Wealth Channel
01:07:52 Lessons from Hg Capital Trust
01:08:47 Communicating with a Broader Audience
01:09:25 The Importance of Brand in Wealth Management
01:10:17 Connecting Private Markets to Everyday Life
01:14:02 Hg's Ownership Structure and Growth
01:15:23 Reinvesting Profits for Long-term Growth
01:17:19 Future Growth Opportunities for Hg
01:19:40 The Role of AI in Future Investments
Editing and post-production work for this episode was provided by The Podcast Consultant.
Disclaimer
The views and opinions expressed in this episode are those of the speaker and do not necessarily reflect the official policy or position of any affiliated organization.
Any references to past performance, including IRR or MOIC figures, are presented on a gross basis and do not reflect the deduction of fees, expenses, or carried interest. These figures are illustrative and not necessarily indicative of future results.
Statements regarding industry rankings, success rates, or performance consistency are based on internal analysis and may not be independently verified. No representation is made that any investment will or is likely to achieve results comparable to those discussed.
This content is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities or investment products.
