WSO Podcast | E103: Partner in Private Equity - The Buyout Market and London to San Francisco
About
In this episode, an old high school classmate of mine, Peter Christodoulo shares his winding path and how he ended up as a Partner at a private equity megafund, Francisco Partners in SF. We hear about what happened to the tech startup he launched during undergrad at Harvard, his analyst days in investment banking at Credit Suisse, his jump to private equity at TH Lee and finally, his lateral move to the small London office at Francisco Partners during the great financial crisis. Listen to hear his views on where the private equity market is headed, the trend toward hiring from non-traditional channels as well as the differences across the PE market in London compared to San Francisco. Stay to the end to hear his advice on how to help differentiate yourself in a competitive recruiting process.
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WSO Podcast (Episode 103) Transcript:
Patrick (CEO of WSO): [00:00:06] Hello and welcome. I'm Patrick Curtis, your host and chief monkey, and this is the Wall Street Oasis podcast. Join me as I talk to some of the community's most successful and inspirational members to gain valuable insight into different career paths and life in general. Let's get to it. In this episode, an old high school classmate of mine, Peter Christodoulo, shares his winding path and how he ended up as a partner at a private equity megaphone, Francisco Partners in SF. We hear about what happened to the tech startup he launched during undergrad at Harvard, his analyst days in investment banking at Credit Suisse. His jumped private equity at THG. And finally, his lateral move to the small London office at Francisco Partners during the Great Financial Crisis. Listen to hear his views on where the private equity market is headed, the trend toward hiring from non-traditional channels, as well as the difference across the market in London compared to SF. Stay to the end to hear his advice on how to help differentiate yourself in a competitive recruiting process. Enjoy. Peter, thanks for joining the Wall Street Voices podcast.
Peter Christodoulo: [00:01:14] Thanks for having me, Pat, it's good to see you. Good to see you. I'm excited about this.
Patrick (CEO of WSO): [00:01:19] Yeah. So just for the listeners to know. We went to high school together a long time ago. So Peter is going to give you a quick summary of his bio and then we'll dive in.
Peter Christodoulo: [00:01:29] Yeah. So I'm Peter Christodoulou. I'm a partner at Francisco Partners. I I've been with FP for now 12 years. I spent the first five years at FP in our London office, and now I've been in San Francisco for seven years. Prior to that, I was at pH Lee in Boston for a couple of years, and before that I was at Credit Suisse in New York doing tech investment banking. And before that, I was doing some startup stuff for a couple of years.
Patrick (CEO of WSO): [00:01:57] Great. So let's go all the way back to undergrad. So were you like always thinking startup like you started? You did a startup right out of school? But was it more like, did you always have a finance meant when you were splitting your hearing about Wall Street and everything?
Peter Christodoulo: [00:02:10] I mean, a little bit, but I would say I was more interested in technology innovation than I was in finance. But the since I didn't have a technical degree since I wasn't like a math major or a physics major or something or computer science, I had a history. I have a history teacher, so it was kind of like, Well, what can you do? And it's like, so the finance, the finance side of things seem to be seem to make more sense. And I worked at a Harvard student agencies HSA as an undergraduate doing like refrigerator deliveries and things like that, rentals and whatnot, which which I think was was more sort of finance and accounting kind of training than anything else. So.
Patrick (CEO of WSO): [00:02:55] And so when you were with a history degree and you're approaching graduation, you didn't do the typical like investment banking, internships or anything like that? Or was it what happened there?
Peter Christodoulo: [00:03:04] I tried. I didn't. It was super competitive. It was competitive. And also, I think I had like the week they were doing, like internship interviews like I was. I had planned a trip with my then girlfriend, and so I was just like, I'm going, I'm going to go to priority. So, yeah, it wasn't quite as good a choice in retrospect, but like the time, it seemed reasonable.
Patrick (CEO of WSO): [00:03:30] So it's fair. So you so you kind of miss the boat there and some of the internships. And then so as you're approaching your senior year, you're coming. You don't have a job lined up,
Peter Christodoulo: [00:03:40] But you're thinking to yourself, I don't have a job lined up and I'm taking a year off to work in a startup and then come back. And I actually had a I got a couple of investment banking offers. What year?
Patrick (CEO of WSO): [00:03:51] What year was that?
Peter Christodoulo: [00:03:53] That was oh, three. So. So you took a year off?
Patrick (CEO of WSO): [00:03:56] And what did you tell me? A little bit about that? What startup and what was the deal?
Peter Christodoulo: [00:03:59] I was it was a tech startup. It was. It was the spring of two thousand. The the world was at its peak, so it seemed like anything was possible and always
Patrick (CEO of WSO): [00:04:09] Getting funding money was just
Peter Christodoulo: [00:04:11] Flowing again. Yeah. And so a few buddies from college and a few other folks, we knew we started. We started a software startup and we raised six hundred thousand dollars and thought we were kind of on top of the world and then everything crashed like really, really fast. And all of a sudden it wasn't. It wasn't cool to like finance kids in college, like with ideas and. And so we all went back to school basically after taking a year off. So it was it was super annoying.
Patrick (CEO of WSO): [00:04:39] But did Harvard kind of take you back with open arms or what's the what's the problem?
Peter Christodoulo: [00:04:43] Yeah, it was just like, Yeah, you just sort of say, I'm taking a leave of, I mean, like, like 10 percent of the kids at heart, not to me, about 10 percent, but a substantial percentage of people were doing that and right. And meanwhile, like Goldman Sachs, couldn't get anyone to like, go to their, you know. You know, whatever information night or whatever.
Patrick (CEO of WSO): [00:05:04] So like, there's some parallels to that now or maybe before, you know, maybe
Peter Christodoulo: [00:05:09] A little bit. I think finance has become a little bit cooler or more interesting because it's blending with other things more actively than I think it was. I think there was there was definitely like a finance track and then there was like a tech track before, and there is still some of that. But I think that there's more, just like in a lot of things, there's more convergence, you know, even just like talking like like hearing Goldman Sachs talk about themselves, hiring software developers, it tells you something about like how some of these organizations have changed
Patrick (CEO of WSO): [00:05:41] So pythons that in high demand now and VCs are really hot still. So, OK, so let's go back to. So you took that year off, you raised six hundred k, you did a software startup, and I assume you were just like in the product development phase when everything fell apart.
Peter Christodoulo: [00:05:55] And then, yeah, exactly. Yeah, we had like a beta tested product that actually worked pretty well. But like, yeah, what
Patrick (CEO of WSO): [00:06:01] Do you mind sharing what it was like? What were you going? What was the idea?
Peter Christodoulo: [00:06:04] Yeah, it was. It was a the concept was this that if you're in a. A large organization, specifically a professional services title for a lot of information is caught in your email. And so what the what it was was a it was a search engine that connected to the email server at whatever the company was and allowed people to do blind searches for for knowledge workers effectively. So you could you could type into a search engine like, let's say, you were at a consulting firm like, Hey, we're doing a project for Topps baseball cards. I'm just making up something totally random. You could figure out if anyone in the company had, like you ever mentioned, Topps baseball cards in their email, basically. And what it would return is it wouldn't return a list of names, but it would return a list of profiles. And then you could blind email people and be like, Hey, like, we're starting a project for this on this topic. Like, do you know anything about that or would you like to join? Would you like to
Patrick (CEO of WSO): [00:07:00] Almost like internal internet search
Peter Christodoulo: [00:07:02] Typekit? Yeah. And there was a sort of. Exactly.
Patrick (CEO of WSO): [00:07:05] I'm sure it exists now, right?
Peter Christodoulo: [00:07:07] Or something in different ways, right people. All that stuff's catalogued a lot, a lot better today between especially with things like Facebook and LinkedIn. It's easier to figure out like what people are interested in or what people know or et cetera. So. And so it actually worked great in monitor consulting was actually our big backer. And so it works. It worked fine until it was going great until things fell apart and no more money, no more money and no revenue and things like, you know, little stuff like that. So.
Patrick (CEO of WSO): [00:07:38] So you go back senior year and along with your co-founders and you said you had some offers at that point for. I did.
Peter Christodoulo: [00:07:48] And I and I and I really thought hard about it. A couple of us making offers and I really like crush myself. Think about it. I was like, Look, I really want to kind of do the startup stuff some more. And and so then I I basically spent another year trying to make that that same startup work within a different context. We had some new managers come in and we took it over. We move the company. They move the company to California, from Massachusetts. And so I kind of worked with them for a year. And after about six or nine months, I was just like, This is not working. And so and then I was like, Shoot, I should have taken this investment banking job that I had.
Patrick (CEO of WSO): [00:08:25] So you you had kind of turned it down. I turned
Peter Christodoulo: [00:08:27] Them down. Yeah, I turned them down. And then I was kind of like on the street, basically. And so but I did know some people and I had, you know, going through those interviews and whatnot. And so through some friends of friends and pounding the pavement, I was able to get hired at Credit Suisse in the summer of two thousand four. Kind of off the street, a little bit outside of the banking class. They I pitched them hard that I knew a little bit about technology, a little bit about finance, and I want to work in their tech group and they they hired me.
Patrick (CEO of WSO): [00:09:00] So how did you take a first year analyst off?
Peter Christodoulo: [00:09:03] Cycle hired me as a first year analyst, two years old for my grade off cycle. Exactly. Exactly. Just like the just like the, you know, very off back, basically.
Patrick (CEO of WSO): [00:09:12] But you feel like those extra two years of like made you a little more like a a senior, a senior analyst or not not like you felt more mature, maybe for compared to.
Peter Christodoulo: [00:09:23] Well, I did a little bit, but the funny thing is that I missed training, so they all the other analysts had like eight weeks of training or something over the summer, and they gave me like three days of training and then a liberal arts background. And right, they're like, they're like weighted average cost of capital. I'm like, I don't know that it like, like, what's this equation? And and oh my gosh, it was. It was crazy. But, but but basic. But I'd say there's the big difference, though, and this is, I think important is because I had sort of swung the bat and miss on the startup stuff and because I was so darn thankful to have a job in investment banking off cycle old for my four, for the grade or whatever. I worked really, really hard and I didn't treat it as sort of an extension of college the way that some people I observed doing right, saying like, Hey, it's Tuesday night, like we're out of work at 10 p.m., Let's go boozing or something like I didn't do. I didn't even come close to doing that stuff. I was probably at the office to midnight more than half the days of my two years as an analyst there, right? And just work really, really hard. Try not to like, stir up trouble or whatever. And it was more of like a no fail situation for me. Then I think then I think some of the other folks. And so because of that, I got a lot out of it. I mean, I also like crushed myself. But but I think my mindset was a little bit different. It wasn't it wasn't like, Oh, this is a job. I was like, This is like the job. And so that that was that was unique.
Patrick (CEO of WSO): [00:10:56] I think back in, back then. Oh, for oh, six, there was, you know, the on cycle recruiting process was much later. Was that always on your radar or did you even know like what private equity was and had it in your head?
Peter Christodoulo: [00:11:09] Or so I. You a little bit because we sold a company to two associates. And so I worked on the sell side on some on that and then I worked on an IPO as well. There was a great company, so I kind of had a little bit of sense of private equity funds. But the whole recruiting thing is I just missed the boat completely and I it was already most. It was like already half over before I'd even like thought that I should be thinking about it.
Patrick (CEO of WSO): [00:11:36] I mean, back then it was probably done in your second year, though, right? It was done in the. It was done your first year. The it was done
Peter Christodoulo: [00:11:44] Like the summer. Yeah. So like about 12, 12, 13 months in. So it was like July, August is when it started.
Patrick (CEO of WSO): [00:11:53] Now it's a full year ahead of that
Peter Christodoulo: [00:11:55] And now it's a full year ahead of that, basically. Yeah, but so I got my job in September and that was considered quite late. And actually the was interesting was the firm I went to flee. They they were caught a little bit late too, and that's why the KKR and Blackstone and all these places had already recruited. Yeah, and they were. And and I think the and so they were. It was. It was it was when this rat race kind of like, Oh, we're going to go early or we're going to like that was that sort of dynamic was just beginning.
Patrick (CEO of WSO): [00:12:26] Yeah, the game theory started playing out, right?
Peter Christodoulo: [00:12:30] Right now, we're already at the point where it maybe it's going to come back on itself, but we'll see.
Patrick (CEO of WSO): [00:12:34] Yeah, we can talk about that in a little bit. I think so. You're a little bit late, but some of the other firms were late, so you still got into some processes, was was it the typical had you spoke to some headhunters, they had you come in and were you like dead set after killing yourself and bank for a couple of years? Were you like, Hey, was there any thought process of, Hey, I want to stay long term?
Peter Christodoulo: [00:12:55] Sell side a little bit. But the the thing is, the banks also like I was at Credit Suisse, they missed the boat too. They made me a third year analyst offer six months after I had already accepted a private equity offer to be an associate. And I was just and I was like. And they offered me like a $5000 bonus to stay as a third year analyst. And I was like, guys. Hey, I've already. You should know that I've already I've told people that I accepted this place to go and it's an associate title and you're giving me a third year analyst offer like now in like like this like weird mailing thing I got no one even told me in person. And I was just like, We're we're like, not close here. And then I think now, since that they and other banks have done a lot. They've got a lot more aggressive, a lot more strategic about that. But yeah, it was it was like early days, cowboy, wild west days of how this used to work. And so, yeah, I got a little I got a letter saying that I'd been selected for a third year.
Patrick (CEO of WSO): [00:13:52] Congratulations, you've bestowed upon you.
Peter Christodoulo: [00:13:55] Yeah, I can stay another year crushing myself for you guys. And no, but I think to your question about like, so I did go to some head hunters. I was extremely green, though, and I'd say my first couple of interviews were just disastrous and I knew they were disastrous when they were happening. But I I would. I didn't even know how to prepare for them. They're asking me questions like walking. One of the few of these I had like modeling tests like build an LBO model like I had never built one. I'd been I'd worked on an IPO and I worked on a sell side, but I would. No one would ever explain to me how to. I never had an opportunity to do that. In the first year, I was like, just getting some of that. My second in my second year was like, build an LBO, but I don't know how to do that. How do you define free cash flow? I'm like, I don't know. Like, you know, I look on the cash flow statement and, you know, like cash flow from operations like. And so yeah, I just like totally bombed like a couple of like one of the interviews that I won't name where it was, but one of these interviews I went to and they asked me some of these questions and I was so bad. Like I had, I met like one person and then I had one, like 30 minute interview and then I left and they were and everyone else had like multiple interviews. They clearly had like this x x to me early. That's great. And the funny thing, though, is that like, I don't know, maybe because I wasn't as close with some of the other analysts and I wasn't like in the flow on kind of like the chatter. I was just like working on. I was like focused on my job because I was like thankful to have the job, and I was so ingrained in that that I just sort of missed the whole whisper culture around how to prepare for this.
Patrick (CEO of WSO): [00:15:40] Yeah, there's like documents to go around. Yeah, all
Peter Christodoulo: [00:15:43] These kids are like
Patrick (CEO of WSO): [00:15:44] Sharing these little modeling tests. Yeah.
Peter Christodoulo: [00:15:46] And I was just like, I literally had not seen one of those before.
Patrick (CEO of WSO): [00:15:51] Yeah. And the debt is so private equity course. I don't think it was out yet. So you had nothing to go on, man.
Peter Christodoulo: [00:15:57] Literally. I was like, literally like just answering the questions as like, you know, some, you know, some educated guesses. So that was kind of funny. And then I smartened up a little bit. So I after a couple of those, I was like, Hold on time out, like I need to. I sort of started asking around, they're like, Oh, that's how you answer that question. That's how you answer that question. I was like, Oh, OK, this isn't. I just need to like, get my schtick down. And and then all of a sudden I got like three offers on my next. Each of my next three interviews were were good and went went into a good place.
Patrick (CEO of WSO): [00:16:32] So yeah, most of those came to recruiters and whatnot.
Peter Christodoulo: [00:16:35] Yeah, absolutely. But but the but the whole like it boggled my mind just like the whole how like ramshackle and not organized and and and you know, you're getting tested against these and these. These, like little cheat sheets are like going around among the analysts. And it was just like ridiculous, like the whole thing. But that's what I want.
Patrick (CEO of WSO): [00:17:02] Yeah, it's funny because I think I always even I was even later than you. Oh, really, I didn't. I didn't end up at a show. I ended up at a small shop in Boston, ended up getting fired pretty soon after. But because the fun was going like this, I didn't know that at the time, but I was super late. I was super late, and I was the only reason I got a job in private equity was probably because, I mean, I had my head down like, you'd 90 hours. I was clueless. Some kid was like, Oh yeah, you want to go to private equity? Here's a here's something from Morgan. Here's a deck from like Morgan saying What is private equity leverage and how you get generate returns? And I'm like, Oh, like, that's pretty cool. That's genius. And so I started studying that, and that was the only reason and understanding how to like, talk about your deals and frame them properly, as you know, as an investor would. The thing was really important, but yeah, if you don't if you don't know what to expect, you're you're just done to the point where you know, so you know, the program CEO yeah, helps kids there. They're using our mentor program to prep the kids that got offers through there that are starting in banking because they know the private equity interviews are happening so fast, right?
Peter Christodoulo: [00:18:10] And now I was a private equity person who interviews some of these people like, I mean, the the rudimentary ness of the questions we now ask because the people have been on the job for like it's like they got out of training like two weeks ago and they haven't like they've done like one comp set. And that's like all they like,
Patrick (CEO of WSO): [00:18:28] Like put together some pins or something,
Peter Christodoulo: [00:18:31] Right? And you're like, like, you don't like I actually there's like nothing to quiz you on, like I don't even like like, like, do you like skiing or something like, yeah,
Patrick (CEO of WSO): [00:18:39] I guess that's a good that's a good question. Is what given the accelerated recruiting, have you guys tried to like, test any sort of like raw intellectual horsepower or anything like that? Or is it more like how personable and how like how much driving they have anything like that?
Peter Christodoulo: [00:18:51] We we've we've had to rethink how we do some of that stuff. And I think we've we've done a couple of things. One is we still we still do. I would I would call it some. We do do some modeling testing stuff. But it's it's more something that you could do intuitively than it is more about than like rote memorizing how to how to like, define free cash flow as one example like. And so it's more about like reading about. So we do this little thing where you read about a company and then you have to like, answer some questions. And some of them are qualitative, not quantitative, and some of them are quantitative. Or how would you think about this or what are what diligence questions would you ask? Like this company like stuff like that? So and so it's more about like trying to tease out like what kind of what kind of thinker they are and that kind of stuff. And there is some modeling associated with it. But it's not
Patrick (CEO of WSO): [00:19:43] It's not like crazy complex, like crazy
Peter Christodoulo: [00:19:45] Complex. And I'd say when I first joined FP, it was a little more like crazy complex because they were testing people. They want people to come in and kind of know how to do everything. So that's one thing we've done. We've had we've modified kind of our recruiting that way. The other thing we've done is we've started bringing in some, some nontraditional candidates from different walks of life. So maybe some people who went to law school or some people who did some work that worked in a company or did some other things and or worked in politics or something and decided they didn't?
Patrick (CEO of WSO): [00:20:16] Sorry. What about like management consultants? Have you guys looked in that pool?
Peter Christodoulo: [00:20:19] Yeah, we've had we actually have always had a history of some management. So I think I'd say historically our analyst classes of call it five analysts or associates are associate class of, say, five associates. You might have like three or four bankers in one or two consultants. That was kind of like the historical kind of kind of way we've done it. And now I'd say there is still that sort of general general mix. But then we've now started to add a couple other, a couple other kind of candidates and expanded that a couple more people because we also, I think because we're interviewing people earlier in their own careers and it becomes harder to, I'd say, our and this is going to come out slightly wrong, but just bear with me. It's like I'd say the hit rate of successful associates is also maybe a little bit worse than it used to be, because we're not actually because they're a little bit further away from knowing what they want to do. They're a little further away about knowing about private equity and knowing how we operate and whether they even like finance, like they've been working in finance for like two weeks or six weeks or eight weeks or whatever. And they're being asked to make a decision about what they want to do two years out for another two years or three years. And so, like I'd say, like things change. Yeah. And so like I'd say, our hit rate of people who are who like the job, want to do the job, do a good job is probably 20 percent lower than it was 10 years ago. Yeah, that's tough. So it's a bit of a it's tricky, but we found some of the sometimes the nontraditional candidates are actually also a little bit like me at Credit Suisse. Like thankful for the job. Like, no, it's kind of a unique opportunity. And and it is right.
Patrick (CEO of WSO): [00:22:01] So for sure. For sure it is. I know there's I know at least on W, so p is held in extremely high regard. So talk to me a little bit about going back to your story so you're able to make that transition. You kind of you button up, you get your prep, right? You get into early, you're there for a couple of years and your transition, your timing is interesting. You're leaving is kind of a two and out program where they're like, go to get your MBA and then come back
Peter Christodoulo: [00:22:29] Or yeah, so so that's what THC is. Yeah. So I joined there in July of 06, and then I ended in July of 08 and it actually my I remember distinctly my offer letter from THC had my like start date and my end date basically like it wasn't. There's no, it's too. Who and out and like hard and fast kind of thing, and that was just they made that very clear and pretty much everyone, not quite everyone, but pretty much everyone who had gone through that program would go to business school afterwards.
Patrick (CEO of WSO): [00:23:02] And I am curious why you didn't do that path because it's such a well-worn path.
Peter Christodoulo: [00:23:08] Yeah. Well, there's a few things. One. The first one was because I was two years older for my kind of grade. I was a twenty six year old first year associate there, and I was twenty four. I just turned twenty four. I was turning twenty four when I when I went into banking. Yeah, so like, I was a little old already. And I just I was like being with my this is my own personal sort of psychology on the idea of like going to business school and quote wasting like two more years just felt so. You know, uncomfortable for me and also in between in 06, 07, like the path of like becoming an associate and staying through or being a lateral to someplace else, what felt more reachable because just just like in the boom we've had the last few years until recently, you know, there's been a lot more opportunity as there's more jobs and more money flowing into private equity. And so while Lee was telling me I had to leave, the idea of going laterally to another private equity fund felt very kind of achievable.
Patrick (CEO of WSO): [00:24:16] Even, of course, even in 08.
Peter Christodoulo: [00:24:18] Well, when I made the decision, that was different than when I left.
Patrick (CEO of WSO): [00:24:22] So tell me about when you made the decision or like how that you knew you were. You knew what you're getting out. You were thinking, Were you ever thinking about business school? Did you like, take the job?
Peter Christodoulo: [00:24:30] I was, yeah, I was thinking about it, and I would say that the yeah, I was thinking about it for sure. And I had one of these, you know, moments where I was just like, I just, I'm not I'm not going to be that thrilled with it. So the the. But but the other thing that was difficult is when I was at the and I was starting to interview at some other places. All of them were like, Well, when can you come to New York? When can you come to London? When can you come to San Francisco? Because most of the Boston firms are very much like go to business school kind of places. And so the Boston firms were, I'd say, much, you know, just they just weren't as willing or interested in breaking those kind of rules, like saying, Oh, we like we'll bring you on laterally. And so I was I was having to go to other places and then my answer was, well, I'm an associate in a private equity fund. I don't just get on planes and. Like, I'm working here, like on a team, and so I can't just like fly to London for two days of interviews. I can't I can't go to New York like on a whim, and I did a little bit of that like I asked for, like a Friday off here or this or that. I was able to do it a little bit, but it was very hard to actually land a job until I was out of THC because
Patrick (CEO of WSO): [00:25:42] Of my bank trying to recruit for private equity in your banking. It's brutal. It's brutal, totally. It's a really hard because you're working long hours. I mean, maybe I don't know what what the hours are like. Actually, I assume they were pretty tough, maybe not banking hours, but up there. And then, like you said, the Boston firms maybe a little more traditional in the NBA higher. They didn't want to give you a post and back without the NBA, right?
Peter Christodoulo: [00:26:05] For sure. Or even or even even if I were willing to be like a senior associate or something or a 30 year associate, like they just don't. They didn't have that and staying in the same way. So the places that I and actually one Boston firm did eventually give me an offer. It was a newer firm that was a smaller firm, but they and they wanted someone who kind of knew how to do a lot of stuff because I was going to be the only associate there. And so I chose not to do that, and I chose not to go to this firm in New York. Instead, I went to Francisco and London, which actually was a total. You know, the whole thing was a bit of an adventure. Moving from Boston to London, I just got engaged, so my fiancé and I moved over there, moving firms and then doing that in the summer of 08. I think we I think I signed in July 08 and then I we showed up in London like the first week in October and like, it was like a ghost town like Baron Lehman had gone under and like oil had crashed and all the oil money had left London. And so there's like,
Patrick (CEO of WSO): [00:27:06] Were you worried about your job? Did you feel
Peter Christodoulo: [00:27:08] Like, yeah, I was like, I just moved to another country.
Patrick (CEO of WSO): [00:27:12] Yeah, I hope so.
Peter Christodoulo: [00:27:15] I just moved to another country. I'm newly engaged
Patrick (CEO of WSO): [00:27:20] And the world is melting
Peter Christodoulo: [00:27:22] And the world is melting. It's like, OK. But no, we persevered. And it was actually a really good. It was a really great experience. And what's interesting is Francisco, I guess I'd say at the time, Thomas Lee was a very finance oriented place and still is. But at that time, I'd say, like they were really their finance, like the modelling and all that was like, really involved. And I wasn't very good at it when I first got there because my banking experience wasn't as robust on that. But coming out of that, I felt really, really I felt like from a technical skill perspective, yeah, that was great. But then going to going to Francisco, it was. These tech companies aren't as sometimes they're not as difficult to model. I think they've become more complicated as the I.T., as the information technology world has gotten bigger and bigger and more complicated and whatnot, these companies have become more complicated to do new things. But I'd say at the time it was great because I felt like I had kind of checked the box on the on the modelling in a way that maybe I wouldn't have had as much at maybe a middle market or smaller market fund or sector specific fund where it was more about the sector. And so I think going to PHP at that time was kind of interesting because I had a little tech experience and then I had gotten some really solid technical skill experience.
Patrick (CEO of WSO): [00:28:45] Yeah, exactly. So you kind of felt your comfort because you already done the job for two years, even though you were in London, a little bit a little bit different. Tell me about those five years, like how things progressed. What was it like? Was it a big office, big team? And then what had you come back here?
Peter Christodoulo: [00:29:02] Yeah, like it was, actually. It was quite fortuitous. The whole thing. I mean, Francisco was great with it in that when I joined there, there were four of us in the office. We actually went down to three people the office for a moment in time in early 09. And then when I left in twenty early twenty thirteen, I think we had seven going, going to nine people there. And so we kind of these are investment professionals I'm quoting. Yeah, but when going there to an office with three or four people at first, the autonomy, the sense of team, the opportunity set is pretty was pretty interesting because we're there's no staffing and there's no
Patrick (CEO of WSO): [00:29:49] Like, how integrated were you guys from like the one from the London office to the staff? I mean, like,
Peter Christodoulo: [00:29:55] Somewhat integrated.
Patrick (CEO of WSO): [00:29:57] But is there a set assets under management for each team? Like, are you guys responsible for each? Or is it all one big pool that you guys are just pulling?
Peter Christodoulo: 00:30:05] It's all one big pool. Yeah, the sector expertise stuff was more was all in San Francisco and we were kind of regional coverage in London, and that's still broadly how we do it. But there's a little more sector expertise in London now. But what that meant was they're all like I'd say at the time, and even still today, to some extent, there isn't as much tech in in Europe as there is in the United States. But the opportunity to be a bit entrepreneurial and call on these small tech companies and go to different countries and break through cultural barriers and things like that was a lot more obvious, I think, than in San Francisco, where the associates there were getting. We get hit with 20 opportunities a week from bankers or something, and it's not an issue about. It's not like certainly we're doing outbound sourcing, we're doing all sorts of things like that. I'm not saying that, but I'd say in London, there was more opportunity for me to sort of do kind of try to make my own mark and try to be a
Patrick (CEO of WSO): [00:31:08] Little more, a little more, a little more lower, lower market like smaller businesses, slightly or smaller businesses, smaller
Peter Christodoulo: [00:31:16] Team. Yeah, more kind of ability to more more convents? Not, not as much. I'm not saying again, not to say it's bad at a larger place, but less being viewed as a unit of capacity and more, you know, more integrated kind of team member.
Patrick (CEO of WSO): [00:31:33] So do you feel like you're joining kind of whatever the title they gave you, associate senior associate, whatever your
Peter Christodoulo: [00:31:39] Sales associate, I was with you for four, Patrick (CEO of WSO): [00:31:41] Years, but you were basically the only you're one of three people in the office. You were doing a lot of the sauce. You were doing a lot of both the modeling analysis, everything. But you're also out there meeting people and trying to. Absolutely. Absolutely. Part of your job, you say, what? What do you say in terms of like right off the bat? Was it like that or did they expect that from you? Or were the more senior guys there doing it?
Peter Christodoulo: [00:32:03] No, they didn't expect for that. That for me, right off the bat. Nor was it really expected, really at any time. But I'd say the I'd say the market there is just less organized because there's all these different countries in a pretty small place, you know, when Morgan Stanley Morgan Stanley doesn't just get hired on every software deal or whatever, it's like you've got cultural things. You've got regional companies, you've got companies. Some companies they would as a as a representing a California tech fund in London, we'd fly to Italy or we'd fly to France or take the train to France or whatever or go to these places. And some companies were like, We really want a silicon, we want a little Silicon Valley pixie dust. And they reacted really positively to the idea of us and being becoming an investor and other places. You know, you'd go and or not even places, just situations you'd go and you'd be like, you have this sneaking feeling that like a local fund was going to do the deal because like so and so was roommate or brother or cousin of someone else. And it was like the whole thing was an inside job and you were just never going to. How did you know? Never really had a chance. And so being able to sort of suss out those kind of situations and figure out how we can do things? Was part of my job.
Peter Christodoulo: [00:33:24] The other thing that was really interesting to have in the European market that was a little different than the U.S. market is. We had there were tons of companies that went public at small scale. So, you know, four or five or six or seven, it was like very hot. It was a very hot thing in Europe to go public as a means for companies to raise money because it was just easy because it was just easier than trying to find a venture or private equity investor. So you'd see these companies go public with 10 million euros or pounds of revenue or 20 million or 50 million or whatever. And they were just small companies. And then when the when the when the recession hit all these, a lot of these companies, just they were still public, but their stock didn't trade because it's like a 70 million euro market cap company. And like, no one cares. There's no research. There's like one trade in the stock a week or something and so on the secondary exchange somewhere and these companies had like all the costs of being public and none of the benefits. And so one of the things we did was we went and took I think we took seven companies private over a course of a few years there and got very good at that kind of doing timing.
Patrick (CEO of WSO): [00:34:36] The timing was really interesting, right? Because if you had if you were putting a lot of money to work from 09 to 2012, you're pretty happy.
Peter Christodoulo: [00:34:43] Well, that's right. That's right. But also we'd see these companies, it's like, wait a second, you're a 30 percent growth software company. And you're being valued on like LTM, like beeps or something, you know, and we look at these companies like some of these we pay and obviously the markets become much more efficient. Now I'm not saying, but at the time this was air pocket and we paid like 70, 80, 90 hundred percent premiums for companies all equity like just we'll write a check, you get a 70 percent premium, like to buy the whole company. And as a class, those deals did very well for us, which is just hell, which is just, you know, tells you how inefficient it was at the time.
Patrick (CEO of WSO): [00:35:25] It's so interesting. Yeah, I'm surprised that even these micro, I guess some of these micro-cap names, there's been no coverage. There's not enough retail people chasing them to buy it.
Peter Christodoulo: [00:35:35] Well, that's true. And the other thing that was true is that tech wasn't sexy in Europe at all at the time. It just wasn't like, it
Patrick (CEO of WSO): [00:35:43] Really surprises me because by, Oh, I guess this is Owen. I guess it had just we just gone through a crash and everything. Maybe people were more,
Peter Christodoulo: [00:35:52] I guess, yeah, like stuff like real estate, oil, financial services, you know, we're much more kind of where a lot of the economy was. It is the the other thing is, I'd say Francisco, the idea of going to a tech sector specialist fund wasn't really wasn't really a thing there. We had a real hard time for a few years recruiting good talent in Europe, and that's part of why they sent me there. That's part of why we sent a bunch of other Americans over there because we couldn't recruit the best people in Europe when we started there because no one knew who we were and and going to a smaller middle market sector specialist fund was not that did. Tech was like not a like a cool thing to do.
Patrick (CEO of WSO): [00:36:39] I'm surprised with like you guys had some good ahem by that at that point, right? We did. Yeah, but couldn't you just be like, Hey, we have whatever it was, a billion or whatever?
Peter Christodoulo: [00:36:48] I don't know. I don't know. Well, we started, we started as as as we did more deals. And, you know, more people took notice. We were able to kind of recruit better. And now it's I think we're in a good place. But it was definitely a process, an interesting process to see that happen. We didn't really have, I think the right word might be pedigree. And in Europe, in Europe, that's felt like a bigger, a bigger deal.
Patrick (CEO of WSO): [00:37:13] Maybe so yeah, the history and the pedigree got it makes sense. So you were there for a good five years, solid run to be away from? How often did you come back see family? And I think I think
Peter Christodoulo: [00:37:25] I think the first year we were there, we invited to 17 weddings in the United States. Oh my. Because like, it was like kind of that time of life where, you know, maybe not 17, but 13 or something something crazy. So. And you know, and so we tried to go to a lot of them. We couldn't go to many of them. I'd say I would probably up in the US three times a year for work, four times a year for work. And then I probably come another couple of times, I don't know, five, five times a year for personal stuff. But but it would be all these like, like crazy weekend trips to go someplace. And then the other thing is, no one, no one really cared. But like we'd be taking Sunday night red eyes back to like. And then like landing at Heathrow and like going the office like directly brutal. And you feel like you feel like you get hit by a train for three days. So, so yeah. So it was it was. It was tricky for a while there. But look, when you when you know, embracing it and kind of saying to the family and friends and others like, say, Hey, come to London, come. We were young and we actually had our first child over there. And the whole experience like that was the experience and like. So we try to immerse ourselves as much as we could in it. While we were there, we knew we kind of knew in our hearts that it was going to be permanent.
Patrick (CEO of WSO): [00:38:41] So did you have like were you able to establish like a good set of friends there? For sure. Yeah. How did you do that? Because like, I feel like you're kind of young and it's a small office. Did you was just through like friends of friends that knew people who lived in London
Peter Christodoulo: [00:38:55] Or how did it? Well, it's funny. I mean, people, I'd say a lot of a fair number of people from college and even high school and then people, you just sort of meet a lot. There's the expat community is also pretty tight there. So yeah, the Australian expats all kind of hang out together and the American expats, you know, French expats. And there's some intermingling, I'm not saying, but you kind of you kind of get to know a bunch of people. And being from Boston, there's a pretty big sort of Boston contingent there, just given I think there's some cultural similarities and things. So yeah,
Patrick (CEO of WSO): [00:39:29] I did a podcast earlier. The guy was a Jets fan. He was not liking my hat very much. I have a Patriots hat on.
Peter Christodoulo: [00:39:34] Oh, really? Okay. Yeah. Well, yeah, so we definitely had some like the, you know, the Patriots are playing the Red Sox or yeah. Yeah, I remember actually the Celtics were playing the Lakers in the finals and like, I'm going to like a watch party at like midnight to. Because the game started at 1:00 a.m. London was, yeah, that's fun, that's fun. So anyway, that's good.
Patrick (CEO of WSO): [00:40:00] So you see, you're there. What kind of eventually did you start kind of asking Hayes or spotting S.F. or was it they wanted you back? What was the how did you it? It was a little tricky. It was a little complicated.
Peter Christodoulo: [00:40:12] Yeah. It was a little complicated. There were a lot of competing different interests there. One, we didn't really hate London, we liked it, so we weren't like in a rush to leave. The other, though, was that I think and I think my boss, the head of our fund, said it well to me. He sort of said, Hey, Peter, look, you can stay there if you want. I think there might be a little bit career limited there because you had a couple of people kind of more senior to me. And he's like, I'm not sure how many partners that office can kind of can kind of have long term. So you may be a little bit pinched if you stay there, but you can stay there. But he's like, but don't tell me in three or four years you want to come back. Because he's like, he's like, either come back and make your career here, you have some European experience you have. So that's good. You got global experience in some East Coast experience, OK, blah blah blah. He's like, but if you stay there and I was I was like a second or 30 or VP or whatever at the time. And he was just like, Look, just decide, are you going to you're going to have your career up there. You can have your career over here and let's make a decision one way or the other kind of now ish because if you know, but if you if you come to me in two or three years and say, Hey, now I want to come back, then you're in this weird spot where like, you've already been there for so long. If they're so long, all your contacts, your professional career, your deals, your expertise is more there versus coming back and sort of building all that up here, leveraging some of what you have in Europe, it's not irrelevant. But it's but, you know, it's more just like, where do you want to kind of make your make your bed? And I thought that was good advice. And so we decided to come back.
Patrick (CEO of WSO): [00:41:55] And so was there any thought of going East Coast at all? I mean, do they have? Does he have any options?
Peter Christodoulo: [00:42:04] We now have a little office in New York for our credit fund. But at the time, it was San Francisco or nothing. And even still, now it would be San Francisco, I think, for equity fund people. Got it. And so, yeah, so San Francisco. So we never lived in San Francisco, so we from the East Coast went to school and work there and then London for five years and now West Coast, it sort of felt like. That's a that's OK. That's a good, good kind of comeback.
Patrick (CEO of WSO): [00:42:29] You made that decision, transition the family out here. Tell me what it's been like, kind of the differences and the yeah, like get out here or do you? I know I love it come from, you know, at least the weather.
Peter Christodoulo: [00:42:41] Yeah, right. Well, having been cooped up in my house now for forty five days or whatever, it's been with my two little kids in in Pacific Heights. It does feel a little cramped, but no, we I think we like it a lot. Look, it's very different. I think there are some things that are good know some things that are great, and there are some things that are, aren't, aren't as good. I think the putting, the putting, the personal life stuff aside for a second, I think the difference is in the market is are perhaps more interesting to talk about. And we've had some London colleagues. I had a we have a colleague from London who came over here now 18 months ago, and I was trying to explain it to him when he when we first came and I was like, Look, the issue isn't deals. There are billions of deals. The issue is prioritization. The issue is where do you have a right to win? The issue is, how do you win and where do you focus? And what's interesting is like, I mean, we're just I mean, today I've had three inbound, you know, kind of things. Yesterday I had four. It's just like you can like you can run in a certain light like you can chase your tail forever. Yeah, exactly. It's like, Oh, like, we'll chase that squirrel. Let's use this one. It's like, it's like, you just go crazy. Yeah. And I think the thing that's kind of interesting about that is that a banker will call up. And I don't mean to say bankers are not negative. It's just like, this is this is the way it plays out. It's your calls up and says, Oh, I've got this great hundred million dollar revenue software company. Great margins, good retention rates, blah blah blah blah blah. Yeah. You know, what do you think? And what's going through our head a lot of times, and I'm sure every other private equity person feels this way. Just to some extent. It's like it's a great company, or at least as presented on diligence as presented. It looks like a great company. Yeah, but that could be very different from being a great opportunity for me, right? Because every other person out there is going to think it's a great company, and all 50 of us who they send books to are going to be bidding against each other on it. And you know, am I going to be the guy who advocates to my partners that we pay more than all those other folks do for a really nice asset that's being run in an auction, in an auction that's being reported on the paper. And we have strategics. And it's just you're just like, just look at the expected value of the time, time investment on some of that and you're like, I have like a one percent chance of winning a two percent and you're just like, and I'm going to I'm going to have to spend how many hundreds of thousands, if not millions, of dollars to diligence this thing to provide a final right. And so the mark. And so that's not the issue in Europe. In Europe, there are few opportunities and it's more about lining them up years in advance or talking to them proactively. You're going to Copenhagen or wherever else to talk to them and meet them and explain why they should think about us money or what they want to achieve in the United States and how we can help them do that. And in the U.S. market, it's the opposite. Just like millions of things to look at, it's a question is how do we triage? Yeah, how do we decide how to take these thousands of things at the top of our funnel and figure out which ones to spend time on?
Patrick (CEO of WSO): [00:46:10] Which ones? Do you feel like large funds like you've been forced to move down market like significantly to find less some of the inefficiencies? And because it sounds like it's just being the bigger know that match your profile are just so well, shop now, like you said, well, well, it's not that you can't buy a shop deal.
Peter Christodoulo: [00:46:28] Yeah, it's more. It's just more like a very intellectually and honestly figuring out like why? Like, like, how are we advantaged? Right? You know, are we do we have a thesis that's contra, you know? You know, contra general, the general view of it? Do we have a do we have a CEO ready to drop in who can change the way the business and operated? Do we have a portfolio company that we can merge with this? Do we have an acquisition idea that we have lined up someplace that no one else would have thought of? Have we been? Have we been? Did we own a competitor to it previously and might they value our expertise? So whatever it is, we really try very hard to write down on paper, like not just sort of talk past each other on it or be like, Oh, yeah, like we've got an angle. Like actually try to figure out where we we think we do have angles or whether where we can be advantaged and try to really spend time on the ones that we think we can actually get done. Because look, the reality. The other thing is on these on some of these situations, look, if you're not first or last. And so there's like the absolute worst thing is coming in second, right? Like, Oh, I just need all the money. I blew three months of time. I spent a million dollars and I don't even get a silver medal.
Patrick (CEO of WSO): [00:48:02] You get the asset right, right?
Peter Christodoulo: [00:48:05] Yeah, I got a one time I got a bottle of wine in the mail from the founder of a company because he was so like he was. He felt badly for us. It's only happened once. So, but that's a sort of market. So and the other thing is like, you know, a lot of times we just put aside all the inbound stuff and we just we think more holistically like, let's think about outbound like what assets do we want to try to own the next few years? And let's start planning now about, you know, look, maybe they'll come up for sale in some sort of bank or auction. Maybe they'll maybe they won't. Maybe there'll be some catalyst for a deal before that. Maybe we'll have a coronavirus situation and they'll need to raise some money. Maybe they'll want to make an acquisition and the founders can't finance it themselves. Maybe we could bring them some acquisition ideas. Maybe, maybe, maybe, maybe. Let's think of some things and and let's try to be proactive about what we do with them way ahead of their being the events. An event? Yeah, if you like the absolute worst is like we get a call and it's like the first time we're hearing about the existence of the company is when it's for sale. It's like you already know you're you already know you've lost there.
Patrick (CEO of WSO): 00:49:20] So yeah, there there's actually a really interesting discussion on the site recently. It was a distressed investing. This time is different and talked about all the dry powder that's out there and how, you know, all these distressed investors and all these firms are ready to pounce. And it's funny because we're kind of seeing it play out in the public markets where like, there's so much money. Out there and like, well, I think part of the reason the market's down so fast is because there's nobody pulled out all the all the passive investing. Just let the money. Nobody pulled it out. No, there wasn't the full panic yet. Hopefully it won't happen.
Peter Christodoulo: [00:49:54] But we'll see.
Patrick (CEO of WSO): [00:49:55] We'll see. Yeah. So tell me a little bit about your perspective on just. The amount of capital A. Do you feel like you said there's so many deals? Is there enough? Do you guys have enough manpower to actually do that legwork that you were talking about in terms of, you know, four years or a year or two, you know, kind of prepping the deals before they even happen? Do you have that? Is that is that enough? Do you feel like to?
Peter Christodoulo: [00:50:22] Yeah, you know, it's tricky.
Patrick (CEO of WSO): [00:50:25] You look at the numbers, it's crazy. Like the amount of dry powder out there is just exploding. Yeah, right?
Peter Christodoulo: [00:50:30] Yeah, no. Look, it's a balance. And I think it's a it's a it's a it can be a tricky balance to manage. One is, you know, managing people, you know, managing highly intelligent, highly compensated private equity people. Isn't that easy, right? And I don't to say that. Like, it's just like trying to make sure people are aimed at things that we are interested in and trying to put enough wood behind the arrow and also make sure that they've got enough to do and have the right support structures. Because, oh yeah, we want to go see some company in XYZ Place because we've been tracking it or whatever. Well, the associated price shouldn't go alone. Like we should figure, figure out who. And then the question is like, well, why are we interested in it? How long are we attracting it? Like, what do we actually know versus don't know? Right? And you start kind of having those conversations. So it's not as easy as just like saying, hey, like go figure out what you can find out on this company and let's go see it. Although sometimes it is that simple, but I'd say so. We're trying to figure out what the right balance of a number of people that we can actually kind of deploy and manage appropriately in some sort of systematic fashion. Yeah, with also maintaining some intimacy and some and some coverage. And I'd say one thing that you can get into trapping. And I think It's like, look, private equity is not a market share business. It's not like, you know, you don't like just because someone. Yeah. And like, you can like, wait for your pitch, like to quote Warren Buffett or whatever. Like, you don't have to do anything ever. And just because someone else is successful when you miss something doesn't mean like you. You didn't like, lose like you, just you're just doing something different. So it's just
Patrick (CEO of WSO): 00:52:10] It's just a question of like, there's committed capital and there's a certain time frame on it. And if you don't put it on network, you don't put it all to work. And it's your right.
Peter Christodoulo: [00:52:17] Yeah, or sometimes you find things at a pace that's too fast and you say, Hey, OK, like we've just put out a bunch of money like the bar's now a little higher. Yeah. For the rest of the year, because we've just done a bunch of things where it's like, Hey, the bar's a little lower and we're trying to, you know, we're not we're not macro economists. We're trying to put out a similar amount of money, a similar number of deals each year and also sell a similar number of companies and return a similar amount of money each year. To the extent we can and that's that can get tricky with in cycles, but it's really not about keeping up with the Joneses. It's really more about like, Hey, we're doing, we're doing what we're doing and maybe it'll work. Maybe it won't.
Patrick (CEO of WSO): [00:52:57] But have you found there's been like some success in selling to not just less distressed, some more to other funds
Peter Christodoulo: [00:53:06] That we've done, some of that we've done, we've done some of that for sure. I mean, I think everyone has the cult of cultivating the strategics and actually getting a strategic bite is it's very hard to predict, you know, the timing can be wrong. The ability to pay their interest in paying what the what their worries or fears or or analysts or other motivations of their stock or whatever. So it's very hard to kind of figure out, like sometimes you know, there's some big mergers in some industry and then there's no like a merger happens and then there's like no smaller M&A for a year or something, and you don't know when exactly. It's hard to predict when those air pockets will be or whatever. So I think we don't try to really, yeah, we'd love to have a strategic exit. That's great. But I think the sponsor exits can be can be great too, especially when we want to roll over, keep going at it. And maybe, maybe sometimes we can keep control of the business and sell a small, a smaller stake so we can get some money off the table that way. We'll continue to control the investment or in other places. We want to give up control and we want to just ride along with a twenty five, thirty five, 40 percent share and let someone else take the reins who we like and trust.
Patrick (CEO of WSO): [00:54:30] And so you feel like the flexibility, like there's enough flexibility with the structure of the fund to allow you guys to do that. Do you feel like like because I know at least when I was in PE, it was like the expectation is typically like three to seven years right on the exit. And I think the fun life is around 10. Typically, in a 10 year period, we see a lot of at least one big pulled out like we're seeing it now, but it was a long bull run. Right. And if the way I saw it is like valuations were stretched for like the last five years like you, I was here at least back in 2016, like, oh, we're way too high. We're way too high. Wait, it's going to pull. It's going to pull in. Like if you had waited, it was.
Peter Christodoulo: [00:55:12] I thought I thought valuations were too high. Every year since 2011. So say you're with me, OK, so I'm with you. And so it always feels like, Oh, it's just a little out of reach.
Patrick (CEO of WSO): [00:55:26] Yeah, I always feel like it's really hard because as from the financial discipline perspective, it's like from a pure finance perspective, it's actually coming from that background. Yeah. And not having like not coming from the VC background where you're like, Well, let's just look at TAM and let's look at, you know, how monstrous this could be in 20 years. It's tougher, right?
Peter Christodoulo: [00:55:48] For sure. I think you're exactly right on that stuff. I mean, look, and we don't try to we're not macro economists. If we just try to put out a similar amount of money, do some amount of deals, buying and selling, then the stuff you're talking about will work itself out. I think one of the issues is that when you have an event like this, like what's happening now or like what happened in 08 09, there's not that much for sale. It's hard to actually deploy money like, OK, like, Oh, the market's down, let's buy stuff. Right. What?
Patrick (CEO of WSO): [00:56:20] Yeah. Who's going to who's going to sell you their distress, but it's
Peter Christodoulo: [00:56:24] Unless they're like, really distressed, OK, like at least majority stake deals aren't like buying the whole company kind of deals aren't really getting like the whole market shut down right now for that kind of stuff. Then you go look at like there's a bunch of pipes being done, but they're being done now. To your point, before there's so much money out there, they're being done at very attractive rates for the companies. You look at look at some of the I mean, look at what Twitter got done, just actually just have it right before the corona really hit. But like, it's like, it's like it's like point three seven five percent interest. So less than half a percent interest and then a conversion premium that was 30 percent higher than the stock price at the time. Now the stock's down, so it's like almost like a hundred percent premium now. But like you look at that and you're like, that's pretty cheap. You know, look, and I think Twitter will grow and it'll grow out of it over a five year period. That might be a great investment, but you look at it from the company's perspective and it's like a pretty good financing, right?
Patrick (CEO of WSO): [00:57:23] Or, you know, did a great job there.
Peter Christodoulo: [00:57:24] Yeah, so. All right. So yes, there are certainly some distress things right now. But then there's also like, you know, a whole bunch of folks piling in to try to do them because there is a lot of dry powder, to your point. I think what's more interesting is see is just like when the market actually starts stabilizing and the private market there is like an M&A market again, like the debt markets are back, maybe at a lower level, maybe less attractive terms. But there's a functioning market and that and there are actually people who want to sell into that right now. No one on the sell side is interested in actually selling into the storm right now. And even if they did like, there's no debt market to support it. So I guess there'll
Patrick (CEO of WSO): [00:58:05] Be some pent up demand later half of this year if we get back to somewhat normal, like maybe a flurry. I think so.
Peter Christodoulo: [00:58:11] I think it's possible. I think it certainly is possible. I mean, look, one of the one of the issues of private equity that we deal with a lot is the like, look, we're unfortunately we're not. You can't own our companies forever. Yeah. We just can't. And portfolio proliferation is a huge issue. Like, in a way bigger issue than anyone's ever talks about. It's just like, I'm on, you know, it's like, Hey, if I if I had 12 companies instead of seven or whatever, I would never be able to do anything like, I wake up in the morning and you get like a hundred emails because there's stuff going on at all these places all the time. And yeah. And so the ability to act like even if it's not perfectly economic or even if you're thinking in six months or 12 months or two years, you can do better. Yeah, unfortunately you can. If you think like that, you'll never sell anything. Yeah. So you kind of need to just pony up and sell stuff sometimes even if it's not perfect.
Patrick (CEO of WSO): [00:59:05] That's interesting concept in terms of like the no, that's interesting in terms of like the partner at a partner level like yourself, is that typically around where you'd like to be in the five to 10 range, not getting up to the 12 to 15? Like, if you get up to there, there's a problem because it's just hard to for sure.
Peter Christodoulo: [00:59:21] And actually even some of mine we we've tried to find ways to bring some other people around it, maybe a principle or some other folks to make it lower touch and look in. Some investments are low touch by their nature because you're a minority investor or someone else is someone else is driving the truck and you're just on it. But the ones that are high touch where you're kind of driving it can be it can be very, very involved, for sure. So, yeah, like I think that's right. I think I think the one for the ones that you're where you're kind of leading the charge as the majority owner and you're the partner kind of leading it. I think no more than five or six, really.
Patrick (CEO of WSO): [01:00:03] Yeah, or it gets pretty stressful, gets it stressful.
Peter Christodoulo: [01:00:06] But it's also just time like it's like, Oh, there's a new opportunity in Atlanta, like, Oh, I guess I got to fly. I can't do that because I'm going to Seattle to deal with my portfolio company. So, yeah, interesting.
Patrick (CEO of WSO): [01:00:20] Well, Peter, I really appreciate all this. Is there any kind of advice you'd give your younger self or I guess, before we even go there,
Peter Christodoulo: [01:00:28] Before we go
Patrick (CEO of WSO): [01:00:29] There
Peter Christodoulo: [01:00:29] A lot, but go ahead?
Patrick (CEO of WSO): [01:00:30] Yeah. Before we go there and wrap it up just in the coming year through this whole, I know it's hard to predict the future, but any for private equity in particular and what you see coming through the rest of this year and next year. Do you think that? How are things like going to come out like when you say the debt markets that you think there's going to be a lot less leverage? Obviously tighter covenants like kind of how we came out of like the twenty eight, twenty nine or do you feel like it's going to potentially go back to kind of high level, high levels of leverage and aggressive valuations?
Peter Christodoulo: [01:01:04] I think it'll I think it'll I think I think it will snap back pretty fast. However, I think it'll be a little bit of a haves and have nots kind of thing. So for quality, for companies that maybe weren't like most companies are affected in some way, but some companies are less effective than others or some. For some, it's a positive. What's happening with corona in the situation? So I think for companies that are stable to growing and are considered quality, they will be able to go right back to kind of the leverage levels and other things that we've been talking about. I think for businesses that are face headwinds associated with the dislocation of coronavirus. I think it could be I think it could be tricky. And I think a lot of those companies that have debt, that debt is traded way off, whether it's public or private. And so I think the if you own one of those businesses like selling it and, you know, a buyer not being able to get the same debt package that the company already has can be can \ cause a misalignment as well. So it's going to take some time to kind of work through. But I think for the quality credits, it'll come back very quickly and be just and I think there's liquidity. Unlike unlike 08, 09, liquidity isn't the issue like the bank liquidity and lender liquidity is not the issue
Patrick (CEO of WSO): [01:02:19] Here, really healthy, at least in the U.S.?
Peter Christodoulo: [01:02:20] Yeah, and look, and even if even if they're not healthy, they can go to the Fed window and kind of get money forever against the whole sorts of different assets. And so that's not that's not the issue. The issue is, is the actual company performance.
Patrick (CEO of WSO): [01:02:36] Yeah, fair. All right. So now we'll jump to the advice you give your younger self or any of the younger listeners that are kind of wanting to follow in your footsteps. What would you say?
Peter Christodoulo: [01:02:47] Well, what I would say is I'd say that there are a lot of different flavours of venture capital and private equity, and there really aren't. I really believe this. There aren't better flavours and worse flavours. They're just different. And so, you know, for some people, they want to go work at the biggest buyout shop there is and some other people want to go work at the VC. Well, you know, there's a history on these things like the best we see today is probably not going to be the best VC in five years or right. I mean, like, these things change. And the biggest buyout shop has changed names a bunch of times. And it's really more about, I think, finding a place or finding a articulating to yourself and then being able to articulate an interview why you want to do a certain flavour of private equity. I want to do like I want to do information technology focused middle market private equity because I think this, this, this and this. And obviously, I know look, I get the I get the game. A lot of people just want a job in private equity. Well, I think part of getting a job in private equity is actually credibly being able to say, Look, I want to work at fill in the blank place or.
Peter Christodoulo: [01:04:04] Among these firms that look like this because I'm excited about this and I think I think you guys are going to do really well the next 10 years because I see this megatrend or I see convergence or I see something, and I think being able to articulate that and forget what everyone's doing. Forget what's hot right now. Just be like I. We have I know all these people who are doing these things. We're going to going to funds that maybe we're out of favour or new or no one understood what they were doing. And whatever is doing well right now is almost certainly going to need to evolve to do well in the future. And so I think the other thing about it is is just the evolution of the industry is constant and so on. I do mean constant, like if you if you don't, if you're not, if you're in private equity and you're not, you're not constantly thinking about challenging the way you do things, challenging how you spend your time challenging how you're prosecuting opportunities, what your processes are, how you're adding value, then eventually it'll stop working. And so the. So, so as younger people like thinking about the industry, I think it's more like, Hey, look. Sector specific stuff is. Isn't has, I think, been proven to be a not a bad place to be, whereas I think when I was coming up, people were like, You want to work at a sector fund like, that's so limiting and you sure you want to do you and all that. Yeah, yeah, all that stuff. It's like, Well, I do. But at the same time, like, you go work, you go work in a health care fund. And yeah, you're only doing health care. That's right. But like, you've got to have to make your peace with that. But at the same time, like maybe that health care fund, because all they do is health care has announced it's going to do it's going to do a pretty good job in health care, right? So. And maybe if you join it when it only has 15 people or 20 people or 50 people and you and you think there's a road for it to become one hundred person firm and manage billions of dollars? Well, maybe that's a pretty good opportunity for you. Yeah.
Patrick (CEO of WSO): [01:06:04] And that's great, I think it's awesome advice, don't always take the shiny object, and the biggest name is it's kind of how we can summarize that for sure.
Peter Christodoulo: [01:06:13] For sure. Absolutely. When you have a look in, I think some of the firms, even the biggest, some of the biggest firms have proven they can double, they can keep doubling or they can keep getting bigger. And maybe they're great places. But but others haven't. And so it's more, you know, all I can. Just like, what's the famous quote that J.P. Morgan said about stocks? Someone asked him to comment on stocks, and he's like, what do you think stocks will do? And he said they will fluctuate for something like that, and it's the same thing. It's more just like, where do you want to vote with your feet?
Patrick (CEO of WSO): [01:06:45] Got it. Well, Peter, thanks so much for taking the time. It's been really insightful and fun and good catching up as well.
Peter Christodoulo: [01:06:51] Absolutely. Anytime. Thanks so much. Good luck with
Patrick (CEO of WSO): [01:06:54] Everything, and thanks to you, my listeners at Wall Street Oasis. If you have any suggestions whatsoever, please don't hesitate to send them my way. Patrick at Wall Street Oasis. And till next time.
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