Down the Security Rabbithole Podcast (DtSR)
This is Cybersecurity's premier podcast. Running strong since 2011 Rafal Los, James Jardine, and Jim Tiller bring a no-nonsense, non-commercial approach to our profession. DtSR brings interviews and discussion with people you want to meet, and stories you have to hear. So whether you're just starting out, or are decades deep into your career, you'll always learn something on this show.
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Down the Security Rabbithole Podcast (DtSR)
DtSR Episode 721 - Finance Masterclass for Cyber (Part 2)
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TL;DR: This pod is part 2 of a 2-part series in which Patrick shares his insights on the world of finance as it relates to cyber startups and financing. As promised, the tracksuit shows up, and it's an epic episode!
Guest: Patrick Dennis
Description
Private equity can feel like a plot twist: one day you are celebrating growth, the next day you are hearing new words like EBITDA, leverage, recap, and “value creation plan,” and everything from headcount to product scope is suddenly under a microscope. We sit down with Patrick to explain what is actually happening behind the scenes when a cybersecurity company moves from venture-backed momentum into private equity discipline.
We start with a clean breakdown of venture capital vs private equity. VC funds can afford many misses because a few massive outcomes pay for everything, whereas PE makes fewer investments and needs them to work more reliably. That difference shapes company behavior, especially when “grow at all costs” collides with a finite market, customer concentration, and the hard truth that bookings and ARR only matter if they turn into cash.
Then we demystify the metrics and mechanics that operators keep hearing but rarely get explained: why cash flow becomes the real governor, why EBITDA becomes the shared language among management, lenders, and investors, and how a value-creation plan drives changes in spend, pricing, and operating discipline. We also get candid about the darker fork in the road: down rounds, running out of cash, taking on debt through leveraged buyouts, and what happens when a company cannot service interest, and lenders end up in control.
Finally, we map the exit paths and what they mean for employees: IPO vs strategic sale vs sponsor-to-sponsor trades, plus how cash and stock deals can (and cannot) translate into payouts for option holders. If you want to evaluate your company’s trajectory with clearer eyes, subscribe, share this with a teammate, and leave a review with the finance term you want us to unpack next.
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Welcome And Conference Banter
SPEAKER_04All right, here we go. Good morning, good afternoon, and good evening. Welcome down the security rabbit hole to another edition of the Donna Security Rabbit Hole Podcast, part two with Chester Cheetah. I mean Patrick. Come on, alrighty. Are you gonna take a shot at I said I'd do it? You promised, and I and I love the commitment, dude. That's amazing. Only for you. That is amazing. That is that like that is one of those things where like you have to there's a certain amount amount of something that you have to have to wear that. Like you're part crazy and part super bold, and I love it.
SPEAKER_02Well, wait, listen, you don't get away with anything. Like, what's a I know what that says on your shirt. That little that was like one of those in real life conferences back when we weren't supposed to do that, wasn't it? That's right.
SPEAKER_04Yeah, when when you're not yeah, that they put IRL because I showed up in person in in in a provo, as opposed to like half the audio uh half the presenters, which you know did it over Zoom because it was I don't know, bad timing or something. Something was going on at the time to scare people from traveling. I don't know what I remember anymore.
SPEAKER_02Yeah, right. Well, in keeping in keeping with what we do on this on your podcast, I guess you're stating that you're in real life and you look like you are, and I look like I am absolutely the worst avatar that ever showed up loving on this thing, right? There's only two of us, so nobody's gonna know if this is real or if this is right.
SPEAKER_04There's no there's there's no third-party attestation. You know what's funny? I uh total sidebar, but I feel this is this is worth mentioning. Uh at HP, I work for a guy named Paul Mulder. And Paul sometimes listened to the show, so hey Paul, if you're listening, you you gotta get you gotta absolutely check out fashion. But Paul went to uh he was my boss at HP, and and he was a character who's an Aussie, which should tell you about half of what you need to know. But he showed up at HP, I think it was Software Universe or HP Discover, I don't remember which one it was anymore, in a pink crushed velvet suit. Like tailored pink crushed velvet. Full pink? Oh, like full pink.
SPEAKER_02Well, listen, for the record, okay, in in your continual uh objective of never getting me hired again. All right, I had a disco party to go to. In case we didn't see episode one, I had a disco party to go to. I'm a happily married man. You do what your wife says, she's done dressed up with disco garb, and now I own a cheetah leopard, like whatever tracksuit.
SPEAKER_04I I I imagine you like walked into someplace and be like, I need to look like I'm going to a 70s disco party, and they went, I have just a thing. Right. We're like, we got you. Some some guy named Ivan with uh with a really big gold chain.
SPEAKER_02Yeah. Well, and I felt like it was a great segue as we talk about like you know, high-tech finance and how all the money.
SPEAKER_03We're about to get into private equity.
SPEAKER_02Yeah, since we're gonna get into private equity and venture capital and how the money gets made, I showed up looking like I run a pawn shop. So that's let's go.
SPEAKER_04This is great.
Venture Capital Vs Private Equity
SPEAKER_04This is this guy. In case anybody's ever wondered why I keep doing this almost good God, how long has it been? 16, almost 17 years. This is why. Because we do stuff like this, and it's so much fun, and I get to learn some stuff. All right, so part one was all about early stage, getting funded, figuring out how much you want, how much you need, valuations, all that stuff. And we ended that one on a be careful who you partner with and how how active they're going to be. And so we said, okay, part two of this podcast is gonna be like private equity, basically. Like once you've once you've gotten off the the daddy's money, and what once you've gotten off the venture capital, right? What's next as a company? Like you're out of the gate, you've got customers, you're running for a couple of a year, two, three years, some some period of time. Patrick, what's the difference between private equity and venture capital?
SPEAKER_02Well, let's back into the answer by actually talking about like how they yeah, that's right. That's right. We're gonna back it on up. So, you know, if you think about venture folks, we talked about this a little bit in episode one, in case you didn't see a short recap. You make a large number of bets, you expect very few of them to work out, but you expect the ones to work out to be outsized. We used whiz as an example of an outsized one, you know, and then we said, like, how many whizes does everybody remember? And I think we all remembered one, right? One. Wiz. Right, whiz. So, so you know, so a venture is like large number of bats, relatively low likelihood of a big outcome, but the big outcome is going to make up for all the other bats. Private equity is a much tighter thing. Like, you actually can't really make bad bets when you get all the way to private equity. For those of you that listen to episode one, I'm sort of skipping growth equity for a second because we're going to like what happens in a company's life cycle and you don't exist in growth equity for very long. So by the time you get to private equity, here's what really is happening. You probably have a real business. You probably don't have any spending discipline. You probably haven't optimized the businesslash found efficiency. And so there's a maturation that's going to take place. Now, the trade-off for running a private equity fund is you're not going to do the 10,000 X, 1,000 X, 100x returns on that investment, but you're also going to be very successful a much larger percentage of the time. So smaller number of bats, the bets sort of have to work out more frequently. Was that was that clear?
SPEAKER_04That that that is so yeah, it's it's a same same casino, different table game. Got it. Love that. Yes, it's exactly right. That makes sense because yeah, because so V VCs make a bunch of smaller debts, 80% flop. The one that one or two that work out are are massive, and you're like, yes, all right, next fund. Yeah. Okay. All right, I think I got it.
SPEAKER_02Yeah, and by the way, you know, like just you can go down through the list. Like at one time, Google was venture-backed. By the way, sort of put Kleiner Perkins on the map. Yeah. Right. DocuSign was venture-backed. You know, like you can go back in history and there's some wildly successful companies. And this is sort of make the point we made last time. I don't want anybody to walk away with, especially on the one where I showed up in a cheetah jumpsuit, the fact that all these people are pirates. That's not the case. Like, there are plenty of good businesses that have been built out of these things. However, if we just take the odds to use your, you know, you just came back from Vegas. I love that analogy. You know, the odds are more are gonna fail than are going to succeed, right? Yeah. So yeah, that's sort of the difference.
SPEAKER_04So you you go from grow, you know, growth at all costs, right? Don't worry about revenue, don't worry about profitability, just grow, grow, grow, grow, grow. At what point do you because there are companies that I I've worked for in my history or have thought of, but definitely worked for, that you're like, we should be past the point where it's grow at all costs. I don't understand. Why are we how are companies get stuck in that motion? Do they not make the is there a point in time where you gotta make that like okay, it's time to switch to actually start making money at some point?
SPEAKER_02Short answer is yes. That transition is very rarely made by the people that got into the investment, which is one of the reasons why you very frequently see a transaction that takes place and you take a company and you know, Raf, like this is like sort of your crew, so I think this will be very like this will resonate with your audience. Those are the times where the people that are in your audience are like, I love that company. That company's amazing, blah, blah, blah. Then they get bought by private equity, and everybody's like, what just happened?
SPEAKER_03Yeah.
SPEAKER_02Well, the the the what just happened was somebody who sees the PL doesn't just see the product, doesn't just get the swag, doesn't just go to the show, somebody's like looking at the money, comes back and says, Hey, y'all, the growth rate that you have had now for the last pick the number of quarters, eight quarters, twelve quarters, isn't what you said it was going to be. So we need to make a change. And that is typically typically, oftentimes that's when one of the existing investors says, hey, this is no longer what I'm good at. Somebody else has to come to the party.
SPEAKER_03Okay.
SPEAKER_02That happens in changes from growth equity into private equity. That happens sometimes when it goes from venture straight to private equity. That sometimes happens when it goes from venture into growth equity. And the growth equity people aren't looking for 40, 50, 100% growth, right? But they're looking for, you know, something greater than 20. So what happens? Somebody shows up that's a professional and says, hey, you can't continue to spend at this rate given the growth. Okay. And we didn't talk about this the last time, so I'm gonna bring up one word. Uh you know, usually when we talk about these companies, we'll hear like revenue, bookings, growth. Very rarely do you hear cash. Okay. But the truth is companies
When Growth Stops Paying Off
SPEAKER_02run just like our own bank accounts. All those things need to translate into cash. So if you think of your offer letter as booking, okay, then you think of your paycheck as revenue, okay. Let's just say you had an offer letter, but they never actually issued you payroll, there would be no cash. Okay. And you pay your mortgage with cash. Right. Right. So someplace when you're talking about all these different metrics, and we mentioned this on the last time, so I want to tie the metrics back in, you get to a place where the metrics that we talked about, churn rates, ARR growth, bookings, like all these sort of softer metrics aren't translating to cash in a way that lets the company run successfully.
SPEAKER_01Okay.
SPEAKER_04Is there is there like a limit? Because is there a limit, like a time limit? Like I'm not saying hard limit, but like we as an investor, right? You you put in 10 million, you and you know, six buddies go and put in 10 million bucks in, the company runs, it's growing at, you know, first year it gets a couple customers, next year it's 20%, and it's 25%, and it's 30%. Like at some point, like it will start to level off, right? I mean, I companies believe they can keep growing forever, but that doesn't seem to be the reality of the space we're in. We're not selling, you know, uh wood planks, we're selling specialized tools to a market that is finite.
SPEAKER_02That's right. That's right. Well, so I mean, there's a couple of ways that that gets worked through. So let's let's start off with the why first, and then we'll back into the what causes the the why. So if I needed to double my money and I only had a dollar, then I would to double it, I'd need two dollars. Okay. That might seem reasonable. It's still only two dollars. If I had five dollars, I'd have to go to ten dollars, okay. Still reasonable. If I had to double my money and I had a billion dollars, I'd have to go to two billion dollars. All of a sudden, numbers get real. So a lot of times when when you talk about growth rates, that's actually a really good time to report back to how much revenue a company has. Because if they're saying we're gonna go grow 40%, which by the way, we hear in security all the time. Oh, I'm growing at 40%, 50%. Yeah, company doubled. By the way, you and I doubled a company together at one time. Yeah. Okay. Like that's one thing when it's $20 million, $40 million, $50 million. Get to be, and we did on a company that's like $200 million.
SPEAKER_03Yeah.
SPEAKER_02You know, gets really hard. Once you double a $200 million company and go into like, you know, $200 to $400, $400, $800. So so that curve you're talking about, what I don't want people to think is like that's not natural. It's natural. Just the law of absolute numbers starts to kick in, and you're like, oh yeah, we can no longer double, double, double, which by the way, when you're in venture, you'll hear hear double, double, double very often, right? You just can't do it anymore. Okay, so park that thought. At some stage, the growth rate is gonna turn. Okay. So tomorrow morning, everybody turn on CNBC. Okay. Assuming that it isn't the day everybody reports tech earnings. When you listen to CNBC on the average morning and it's not tech earnings, they're gonna talk about simple things. They're gonna talk about free cash flow, they're gonna talk about just basic revenue growth. Very, very simple metrics. Because in those big mature businesses, Coke, Boeing, McDonald's, United Airlines, General Motors, people are looking for very basic things. And what they are looking for, Raf, and this is really important, is they're looking for earnings per share. Okay, which is truly and truly really a function of how much free cash flow was generated. What we get used to in tech is we bet today on future cash flows. Yep. Yep. Okay. So at some stage, when some finance dweeby type of person is in Excel and they take that growth rate from 40 down to five, and the revenue starts to flatten out, and the cost structure is growing fast, like faster than sales are growing. They start to look in the future and they're like, this business isn't gonna earn any money. That's when it happens.
SPEAKER_03Okay.
SPEAKER_02Does that make sense?
SPEAKER_04Yeah, yeah, yeah, yeah. Yep. Yeah, because you you continue at you know, the the burn, the burn rate of the your burn rate, right? You're your the how much you're spending on marketing, usually it's sales and marketing, right? Yep, yeah. How much you're spending on that isn't bringing in that math. Like it and it's true that you know, growing at a doubling at $10 million, right, is vastly different than 10% growth at a billion.
SPEAKER_02Yeah. And you made a really important point that I think is worth like just grabbing and zooming in on for a second, given who your audience tends to be. So for those of us that have been doing this for a while, we've all sold to the big banks. I'm gonna skip names for a second because that's not cool, but like we've all sold to them. They're all the ones we would recognize. All right. If you compare in most software companies, and I've run a bunch and been on the board of a bunch, if you compare one of those big banks' annual spend with one of these companies to like another company we've heard of, okay, they are not like typically just one X or two X, they typically are spending five times the average customer. So the point you made earlier, which is really important, is and and you know, I specialize in enterprise software, so let me make an enterprise comment for a second. Most of the value of a company is driven by the bookings that you are generating inside of a global 2000. Yeah, that makes sense. So there's like thousands and thousands and thousands of companies. This last company I ran had 55,000 customers. Okay. A lot of customers. So of 55,000, it took 1,500 to generate more than 80% of the revenue and more than 120% of the profit. So to your point, when you're these security companies and you're a venture-backed startup, like your first move is like, I'm gonna go land that big bank. So let's just take a hypothetical, even though this happens all the time. You go land that big bank
The Metrics That Become Cash
SPEAKER_02for a whopping 250k.
SPEAKER_03Yeah.
SPEAKER_02Okay. Which feels like a big deal at a venture-backed company. Well, there's only five of those banks. Yeah. So now you're down to four.
SPEAKER_03Yeah.
SPEAKER_02Right? So to your point, the thing we would call that in my line of work customer concentration. Like how concentrated are the revenues inside of a small set of customers and penetration. How much of the global 2000 have you penetrated with a particular company? So let's just pretend you and I start a company tomorrow. We make a grand product, we decide to go out the door for $10. We accumulate all global 2000 customers at $10. Somebody would look at us and go, but there's no future in this company, guys, because where are you going to sell this product next? Yeah, we're next. Right. So these are sort of the factors that go into figuring out like where the company is in its life cycle.
SPEAKER_04That that gets scary pretty quick because we like to think that you could just keep selling and selling. And there's a lot, I mean, there are lots of buyers, but there's it, and you know, those are like the we call them bluebirds, right? Those those are just like those massive deals that show up. You know, you got a 10 million, some some sales are up, you know, once a year goes, I'm landing a 12 million dollar deal. You're like, cool. On our average sale price price is 150k, right? And there's like four customers that can afford right. So and there's like four customers that can afford that giant deal you sold. Like, that's awesome, great achievement, but you're not getting 10 more of those.
SPEAKER_02Right. And and so two things happen in that moment. That deal drops in the PL. It looks great to the company, and it is great for the company, but this whole conversation started with people talking about the future value of the company.
SPEAKER_03Yeah.
SPEAKER_02Right. Then you start to say, like, well, how many more of those are we going to do? Is it repeatable? So these are the words that you start to hear, like in our industry. Like, hey, how do we get repeatable? How do we get to velocity? That's another favorite word. And so sooner or later, I'll introduce a concept. This is where you get into product segmentation. Like, can your product just sell to the enterprise? Can it just sell to the mid-market? Can it just sell to SMB? Can it sell to all of those? And inevitably, what happens in a product is it bumps up against a boundary. It starts off as a mid-market product, wants to go to the enterprise, starts as an enterprise product, wants to go to mid-market. All of those are about ready for this term, TAM expansion. Like total addressable market expansion. You know, until you figure out like this combination of what's my price, what markets am I going to serve, what's my current growth rate, if you know those things, you can start to project how long can the company continue to grow. Does that make sense?
SPEAKER_04Yeah, yeah, completely, completely. Because then there's a very finite point at which you want to start, you know, profit and and revenue becomes, I think, probably more, you know, it switches to more important than just all out growth.
SPEAKER_02Yeah. Now, I think the primary metric that gets used, it's oversimplified, but it's one that when you know when you're running a company, which tends to be, you know, the job that I've had and been fortunate enough to do it a few times. We tend to say things to you know folks like, hey, this is what new logo growth looks like. Yeah. Okay. There's a point in time where like you'll start to see a company stop stop talking about or emphasizing new logo growth and start talking more about average sale price or ASP, right? Or, you know, yeah, you know, some share of wallet metric. So at some stage, you'll just watch the crossover where it's like, okay, hey Raf, we've accumulated enough of these logos. We need to monetize them a slightly different way, or the company can't continue to grow.
SPEAKER_04So we we're introducing terms, you know, at at some point you start, and usually it's right around the PE time, you start hearing EBITDA. And and and in some companies, I've had my bonus tied to that. I've had you know executives get their bonuses tied to EBITDA. And sometimes it to in my like I've worked at a company where that number felt like a little bit of black magic. Like somebody, like I know what the number is. I'm not sure I understood how you got there, and I don't know if you got there there the same way twice.
SPEAKER_02Yeah, so for those of you that don't hang around in these circles, Raf's absolutely right. Sooner or later, and by the way, I am totally guilty of this. This is in my top three metrics, and I can be happy to explain why. You wind up talking about EBITDA. Earnings before tax, interest, and depreciation. Okay. And go again, earnings before tax, interest, and depreciation. Sometimes you'll get some other things appended to the end of that. So if you see something that looks like EBA. EBADA, okay, but like there's another letter on it. It means like you're probably working in a business that has some other thing that's gonna get excluded. I'll give you an example. Like people that have a pension typically report EBADAP, which is less the pension obligation. Okay. Right.
SPEAKER_03Okay.
SPEAKER_02All right. So I use that example to prove the point that you just made, which is yes, effectively what we are doing is taking profit. Okay. So I'm gonna, for all of you that didn't go to business school, I'm gonna summarize all of business school in one line. Revenue minus cost equals profit. Okay. R minus C equals P. All right. That's the whole thing. All right. So if R minus C equals P doesn't look great, you grab the P and you redefine it. Okay. And so if you redefined profit, you would make it EBITDA. All right. And there's some good reasons to do it. And to be candid, the reason why you hear so much about it is it's sort of the uniform metric used in financing that sort of is representative of profit without being too stringent. So think of it as profit with some exclusions. That's how you many times determine interest rates, credit ratings, things like that. So is it meaningful? It is really meaningful. Is it easily understood? No. If you worked at a company and you said to the CFO, hey, give me all the things that went into the calculation of EBITA, you know, the list would be very long. And just so nobody gets totally freaked out about it. I mean, there are rules that are applied to it, but there's also human judgment. And so, yes, I would say you're like half right. It's not like black magic in the bayou, it definitely is like grandma's sauce.
SPEAKER_04Okay. That makes sense. Oh, I like that. That's a good analogy. We've got the good analogies going today. I like that one.
SPEAKER_02Okay. Yeah. So, you know, and by the way, it's not the same household to household, not the same company to company, right? Yeah. But like, if you are hearing, like if people listen to this or hear the senior leadership talk about EBITDA, should they be petrified of it? No.
Customer Concentration And TAM Limits
SPEAKER_02It's a very standard metric to be used. It at times is it worth understanding what goes into it? Sure. Okay. Is like you you are mildly comfortable with that answer. And that's probably the right place to be.
SPEAKER_04Yeah, because I've I've I've been in organizations where you where we feel like that like we're we're we're going in the right direction, things are great, and Ebida is X. And like you know, a quarter goes by and suddenly it's like a totally different number. You're like, but nothing's changed. What happened? And I don't know that maybe it's like nothing's changed, but nothing to us, the employees have changed. Like we don't understand what happened because some some obscure piece of business, like uh, I had one CFO explain to me a couple of jobs ago that the number looks totally different because we we sold off a bunch of real estate that we owned, and so like a bunch of that went away and suddenly we're a much better company. I'm like, what the hell does it have to do with anything that we're selling? Like, what is there's nothing to do like what does real estate have to do with this?
SPEAKER_02Well, so you know, if you've worked, if you've worked with me and you have, so you know I do this. One of the reasons why when I communicate with employees, I always begin with like bookings, revenue, expense, EBITA, cash.
SPEAKER_03Yeah.
SPEAKER_02Is and and by the way, I consider if you don't understand those metrics, then like you need to work a little bit on financial literacy, like as a person, like it'd be good for your family. But if you understand just those few metrics, you can start to see when some of that stuff comes in. Because remember, the E was earnings. So take your example. If they reduced the real estate footprint, then what they would did was they reduced expenses.
SPEAKER_03Yeah.
SPEAKER_02If revenue was flat and they reduced expenses, you made more money. Now you're right. If you're a product person and you're an engineer sitting in a product org, you didn't do one thing to change anything.
unknownRight.
SPEAKER_02Right. By the way, you do want some person in GNA, you know, the you know, general administrative department, like cleaning up the real estate portfolio. It's not that it's a bad thing, but you're right. It doesn't show through the same way.
unknownRight.
SPEAKER_02Like you didn't generate more EBITDAC because you generated more sales, you generated more EBITDAC because you controlled expenses. Truth be told, if you're running a good business, you need to do both.
SPEAKER_04So all right, let's continue the story then. So we you you've made the transition, you're in, you're into private equity, somebody steps in and says, okay, you're not the 20% growth company, 80% growth company anymore, but you're but we there's a future here. How involved does the rate of involvement between VC and PE change? Do you suddenly have like, you know, do they typically get involved more? Are they more hands-on? Like, how does that work?
SPEAKER_02So we're gonna start at in this one, we're gonna start at the top and we'll go down. Sometimes I tend to like to start at the bottom and go up. But whenever you work through one of these things, you write something called a value creation plan. You'll often hear it referred to as the VCP in short. And the value creation plan basically is an articulation of why you bought the company and what you think you're going to go improve. Okay. So the VCP could say, let's pick an extreme example. We think there's an opportunity in the mid-market, they've never served the mid-market, we're gonna move them into the mid-market. And then some analyst is gonna say, we think that's worth this much revenue and this much margin. Okay. Take your example. An analyst could go through and say, like, wow, there's this wild expense on real estate. Look, these people tried to sign a 10-year lease in the middle of a very expensive city in the Northwest. And, you know, they don't actually have anybody showing up in the office anymore after that event that won you that shirt. So we're gonna reduce those expenses. All of those things go into a value creation plan. All right. And what really is happening after a company gets purchased is you are implementing the value creation plan. Now, hands-on or not hands-on basically has a lot to do with whether or not management will do the things that are in the value creation plan or not. All right. The more that the CEO and the management team are willing to go work on the value creation plan, the less involved somebody's going to require themselves to be. You might want them involved because of their skills, back to what we talked about the last episode. Some of these people are really smart, so getting them involved can be really good. Right. But if ultimately the management team's like, hey, I don't really want to do this value creation plan, then the owner is gonna say, Hey, listen, we need to get involved. Does that make sense?
SPEAKER_04Yeah. Yeah. Yeah, that does, and I've seen that. I've seen it.
SPEAKER_02Yeah. I mean, and so like make it into your personal life. We a lot of us have had teenagers. How many times have you heard, like, oh no, I'm gonna really do the homework and study for the test?
SPEAKER_03Yeah.
SPEAKER_02Okay. First test comes back, the grades are bad. All right. What do you do? Do you go back and you're like, hey, grades weren't good. You said you studied. Did you really study? You know, look at the Xbox logins, and there's like 38 hours of call of duty the day night before the test. Like, okay, like that didn't happen, right? So maybe you give it another try. By the third try, you're like, okay, first of all, I've unplugged your Xbox and it's in my closet now. Okay. And right, I'm gonna sit next to you for three hours when we do the studying. Pretty extreme example, but we do the same level of management in our personal lives when things go off the rails, right? Yeah, yeah. Okay.
SPEAKER_04Yeah, that makes sense. I mean, I I think you know, I I think the I saw I I lived a pretty interesting example of that uh a couple of a couple of companies ago where the the partner, it was a junior partner, I think, that was brought in, like would show up weekly to the SLT, ELT meetings, literally, and just like have input. And sometimes he'd be in the back of the, you know, back of the room taking notes. Sometimes he would ask questions, but there are times where he'd be like, yeah, that's that's not gonna get us to where we want to go. And every and uh inevitably we'd be like, Who's that guy? Does he work here? Right? And then you know, like, no, but we all work for him in a way.
SPEAKER_02Well, so so let's talk about that. It's we're gonna go like
EBITDA Without The Mystery
SPEAKER_02side quest. Okay. Um you're working in private equity, one thing to be just kind of to consider is what I refer to as role clarity, where mistakes can get made is when people confuse the roles. So, like, for example, there can sort of only be one CEO, there can sort of only be one CFO, right? If a private equity firm or a venture firm, although it's much more unlikely with venture, if somebody steps in from one of those firms and starts to override management in a significant way, you will cause role clarity issues. And what role clarity issues will lead to is just that a lack of clarity between kind of the subordinates in the organization and what the goals and objectives are. Bad sign. Now, that can a lot of things can get you there. Like management not doing the VCP can get you there, poor results can get you there, an overzealous junior person at a private equity firm can get you there. You know, there's a lot of things that can get you there. But yeah, that's uh that's a yellow headed to red flag fast. Now, in fairness, to try to be balanced. When you're public, so when I ran guidance software when we first met, right, I had three large shareholders, but then I had a bunch of other shareholders.
SPEAKER_03Yeah.
SPEAKER_02So the reality is like no one person could kind of show up and say, here's what you know you ought to do. But there were three or four people that had pretty big holdings that could offer input. And it was just that input. And by the way, big holdings were like 10%. When you're in private equity, typically there's one or two firms involved. So, you know, yeah, you're right. To some extent, that person in that room was sort of your boss because there were probably one or two private equity firms involved. They worked for one or two of them, and so 50% of the shareholder base was represented by that person's input.
SPEAKER_04Yeah.
SPEAKER_02Pros and cons, by the way, in that pros and cons, right?
SPEAKER_04So and and that's I and I I I typically saw, and it makes sense to me, right? So I typically saw it go from passive into like actively, we'll say like it went from total passive, just taking notes, to like nudging and steering decisions to flat out, like, we're not you're not gonna like don't do that as things got better or worse on the in the company profile.
SPEAKER_02Sure. And that makes perfect sense because those people have the most skin in the game. So let's just say for a second, those people bought the company for let's use an easy number, a billion dollars, and they now have you know, and they're expecting to walk away with three billion, all right. If all of a sudden they think you're doing something that isn't gonna help you get to the three and might actually impact the one, they're gonna speak up.
SPEAKER_03Yeah.
SPEAKER_04Right. I mean, that makes I mean that that that makes sense and it would make sense in in everyday life, it makes sense everywhere else too. So like I get it. Hey, Patrick, what happens when you've got uh experiences recently, when you've got two, two, you're backed by two, a majority and a minority in private equity, right? And since we're touching third rails, at this point I might, it's like the tongue to the uh flagpole, but the flagpole's uh electrified.
SPEAKER_02We're gonna bank frankly, so we're gonna we're gonna grab it in a lightning storm. Is that what we're doing? That's okay.
SPEAKER_04All right, let's go. Um so you you've got you've got two different, and and they seem to have slightly competing priorities over time. And you know, the minority is like, you know, I didn't sign up for this, or the majority is like, I don't like where this is going. I don't think I'm in for this anymore. The minority's like, hey, you know what? I I could, I could, I want to, I want to take this, and so they're going to flip. Like the majority doesn't want out, but they're just like, eh, I want a smaller stake. I don't know where this is going. How does that impact the like the people that have interest in equity in the company, the people that have options in the company, right? Those that have some sort of financial interest in seeing this thing succeed, right? Because there's people that you join a company, you get a bunch of options, you're like, all right, I'm gonna go get this thing done, and suddenly you've got overlords that are not in sync, and you see this, like you hear things like leverage buyouts and and you know, recapitalizations and all sorts of ugly things. Like those are words that usually to me, when I've when I've been a part of them, those all associate with like, oh crap, part of the boat's on fire, there's pirates on the way, like we need to figure out which way we're going. We need to go figure out right now.
SPEAKER_02Okay. Lots to unpack. We're gonna go.
SPEAKER_04I know I threw a whole lot at you. That felt like that that felt a little bit like therapy.
SPEAKER_02I was gonna say, do you do you have a couch there? Because I feel like you should probably lay down. Okay. And if I could turn on the white noise machine, all right, over there, I would do it. Um so before we get to the terms, let's go, let's try to land a point we made earlier. So remember when we said like we were talking about EBITDA, and I said one of the reasons nobody wants to talk about it, and in mature businesses, you always do you talk about earnings and you talk about cash.
SPEAKER_03Yeah.
SPEAKER_02Okay. The situation you just described is typically happening when a company is running out of cash.
SPEAKER_04Yes.
SPEAKER_02Okay. And what's happening in that moment is somebody is having to make a decision of whether they're gonna put more cash in, okay, or they're done. So, you know, when you just a second ago, you sort of just described it as like one of them is going like and the other one's like, no, I'm in. Okay. That is typically over the fact that the company needs more cash, and someone then has to believe that if they put in more cash, they're gonna get a return. Okay. Yeah. So now we go back to at the end of the day, all these people do is sell you expensive money. So let's try to tie some concepts together. All right. We went through episode one and we left episode one with a big valuation. Remember that? Yeah. Yep. And we and we got that big valuation because our growth rate was great and all those things, and we didn't want the dilution, right? And so the big valuation was good for the venture person and it was good for the founders. Okay, but now all of a sudden the company has signed up to deliver this big value. We're now in episode two. Time has passed, we burnt all that money. Okay. Back to burn rate. We burn all that money. All right. So now the same, you know, pretend the guys are with us again for episode two, right? All you all show up and you're like, hey, Patrick, we need more money, right? Well, now if I'm gonna put in a check, I might have to really ratchet up that valuation, right? Okay, okay. Now let's pretend we don't think that that valuation is right, meaning it's unachievable. So you still need my money, okay, but I can't really raise the valuation, okay, because the performance doesn't say that you guys are gonna be worth that much money. All right. Now pressure enters the system because you need the cash. It's hard for somebody to see that future valuation. That starts to be the fork in the road where you know, somebody might say, hey, listen, I'm out. I don't think I can get my return on this next invested dollar. All right. Somebody else might say, Okay, I'm in. Now let's talk about why they might be in. They might see a future where they get a return on that invested dollar, or you're ready for Crazy Land, get out your cheetah freaking tracksuit. They might do it because they've to use your Vegas analogy, they're doubling down. Yeah. Okay, they're afraid it's gonna wash out. If it runs out of cash, it's worth zero. Yeah. So now they have to go fund it. Okay. So in those scenarios, and by the way, I'm not getting into like whether sponsor A swap is sponsored B. This is a generic description. It's all the same. Like, you can apply these principles I'm giving you to any of those. Okay. Somebody is really saying, like, hey, my position is is so, I'm so invested in this company, I have to do the next round. By the way, that happens in venture a lot. Also happens in private equity. A bigger firm might say, I'd rather just walk away from this, step back. In that case, what they're gonna do is sell their position. The real question then is whether or not somebody can get the valuation, okay,
Value Creation Plans And Role Clarity
SPEAKER_02that was expected before, or somebody's gonna have to go deal with that valuation. This is where you would hear something called a down round, wouldn't be where you need the money. It doesn't support the value anymore. So everybody's gonna get compressed, okay? Or maybe if the previous round said a value was a billion, the next round isn't very something much more modest. All right. These are all the sort of pressure that enters into the system. Your original question was how does it happen? It happens because you're running out of cash.
unknownOkay.
SPEAKER_02Okay. And then somebody has to look at it and say, okay, they're running out of cash, but they need cash. All right. Can they buy my expense? Can they afford to buy my expensive money? Okay. Maybe, maybe not. And or do I have to put money in or I'm I'm gonna lose everything? Yeah, so that feels like pretty extreme, but those are very real scenarios.
SPEAKER_04Yeah, that that feels like a car I bought when I was in my early 20s. Like, you know, it was cheap, it got me to work, and then like something broke, and I was like, okay, I guess I just need to replace that hose. You replace that hose, like also the head gaskets leaking, and you need new tires, and your brakes are shot. And your engine probably has another like a thousand miles on before that goes away. You're like, okay, do I replace those or I just do I just walk away?
SPEAKER_02Right. Okay, so can we try to introduce? I don't want to make this way complicated for everybody, but we're a little further on, right? Now we're in our private equity phase. Okay, and you mentioned you said a leverage buyout. All right, let's grab leverage buyout for a second. I just want to unpack what that means. What a leverage buyout is, is when I take some amount of primary capital and I put it in and I raise debt to fund the rest. For all intents and purposes, when you buy a house, your your mortgage is a leverage buyout. I am buying the house with a limited amount of primary capital and I am taking on debt, right? That's how we get the house. Okay. Okay.
unknownAll right.
SPEAKER_02So, in and of itself, not bad. All right. What I want to zoom in on is the idea of debt. So so far, we've always been talking about people putting money into these businesses, okay? As if it's like just cash that came out of somebody's checking account, got moved into a company's, you know, checking account and they're spending it. All right. What you just described, all right, is also a time when people start to say, okay, I've got a business, I need more cash. Can I raise debt? All right. Now, why would you raise debt? Well, the debt does not necessarily dilute the equity. You haven't taken on more primary capital. You just have an obligation to go pay a bank, right? Okay, so it's it's bank as opposed to a private investor. Got it. Okay. Okay. So that can look like it's really attractive. Now, the trick then is now you're signing up for an interest payment. Okay. Right? Because you're going to take on some debt, you're going to pay interest. All right. So this is where when you really get into private equity and you talked about these leverage buyouts, the math that goes on is how much money do I need to put in? How much debt can I raise to buy the company? And then can the company continue to, and you know, and in these worlds, they'll say fancy words like service the debt. Okay. Service the debt just means pay the interest. Payback.
SPEAKER_03Yeah.
SPEAKER_02Right. So, so the calculus in this phase changes a little bit because maybe you can't like raise more capital and get a higher valuation. All right. But what you can do is you can go to the bank and try to get some debt. But that's sort of what goes on in this phase.
SPEAKER_04Does that make sense? Yeah, but you said pay back the interest. You're not talking about paying, but at some point it's not just the interest, you got to pay back the actual debt, right?
SPEAKER_02Sure. How does that work? Well, it does or it doesn't, right? So what happens in a lot of these companies is back to like when we talk about cash. Okay, like we need to generate cash bookings, revenue, expense, we need cash. Yeah. All right. You have to keep paying the interest. So you're paying the interest, you're paying the interest, you're paying the interest because you're booking, booking, booking, booking, growth, growth, growth, growth. All right. If it doesn't translate into cash, you're never going to get to a place where you're paying down that principal. Okay. All right, that makes sense. Okay. Now, if you get to a place where you can't pay down the principal and you can't make the interest payment, then what happens? Then you're bankrupt. Yeah. That doesn't sound good. Okay. So like just because we're trying to do this whole thing in like two episodes, that is when you will hear lenders wind up owning companies. Okay. Okay. Private equity firm bought it. They did too big a leverage buyout. Company can't service the obligation anymore. Private equity firm doesn't want to put another dollar in. All right. Company winds up, can't make its payments, can't make its interest obligation, winds up owned by the lenders. Now, you might sound like, hey, Patrick, does that ever really happen? That just happened to a company called Medallia that was owned by Toma Bravo for like $5 billion. So, like, if you want a good case study for your crew, even though it's not cyber, on like why I worry about this stuff, that's a really good example. Super high quality private equity firm, one of the best in software in the world. Execute a leverage buyout against a company that's a pretty good company. Market changes. By the way, they did it during ZERP. So it kind of like ties together all the themes we've talked about. Yeah. Right? Get to a place where they don't want to put another dollar in. You know, interest obligation starts to get to be too much, that servicing gets to be too much. And now it's owned by, among other people, Blackstone, who isn't a software private equity investor, but did lend money to the company. So was that okay for a full circle moment?
SPEAKER_04Yeah, that that that that yeah just came some PTSD there. Yeah, so that that makes sense. So Blackstone, a bank, KKR, one of those, you know, one of those big guys. Sure. They suddenly now find themselves in control of a company, but there were there were private equity investors. Do they get wiped out? Your investment goes poof, gone.
SPEAKER_02Yeah. Remember when we talked about the liquidation preference in the last episode?
SPEAKER_03Yeah, yeah.
SPEAKER_02Okay. This is where preference comes in. Okay. Okay. And usually the creditors are first in line. Okay.
SPEAKER_00Okay.
SPEAKER_02Not the equity holders. And so in that case, the equity holders are wiped out. And the creditors are picking up the company. Okay. All right. So who else is getting wiped out?
SPEAKER_04Founders and LD employees. Yep. Yeah. Everybody else that everybody else that worked towards a someday that never came.
SPEAKER_02Okay. So now that we had to take on debt because we want to have a sale con sales conference in Tulum versus Telluride. Yeah. And we spent all that money and then our growth rate turned a bit. And then we had to go get more cash, but we couldn't get more cash. And now all of a sudden, you know, we wound up raising debt. And now the growth rate's turned again. This is why, like, you know, when it comes to fiscal responsibility, I'm a little bit more disciplined. Like, this is not a hard cycle to identify. And I think most people, by the time they got to the end of the story that I just described, would have preferred have club and tell your ride and kept their job.
SPEAKER_04Yeah, yeah, seriously. I'll take a give me a like give me the future of the company over a you know a one-time padding fleecing moment. Okay, so that that's that that's like the the the dark the dark fork. Let's just say the company becomes private equity gives them some money, they become wildly successful. Okay. It is we they're they're practically printing money. So at some point, doesn't the private equity company be like, all right, off you go, but like who do you do you are your options public markets? In other words, IPO? What's option B?
SPEAKER_02Strategic sale.
SPEAKER_04Okay.
SPEAKER_02So IPO, sell to a strategic, sponsor to sponsor trade. Those are sort of the typical three. Sponsor to sponsor trade might mean Raf, you run a private equity private equity company and I run one too. Okay. Turns out I have I have an identity management asset. Okay. Just hypothetically, you have a machine identity management asset. Okay. My identity management asset is bigger than your machine identity management asset. You're like, hey, I could scale it on my own, all right, try to put all the money back into go to market, but Patrick's got something that's pretty good going. Meanwhile, I'm saying I still need growth, all right, and I have an incomplete portfolio. Maybe what we ought to do is trade RAF's company into my company and put them together. All right. That's still considered a sponsor-to-sponsor trade. Okay.
Cash Shortfalls And Investor Conflict
SPEAKER_02You know, even though like to some extent it's being it's what would be called a sponsor-backed uh strategic acquisition. The other way it could go is my private equity firm is focused on running things for cash. Yours is focused on running things for growth. You don't think the growth story is there anymore. I draw the conclusion I can run it for cash. I buy it from you and I'm gonna run it for cash because my my tie out the terms, my value creation plan is different. So private equity firm goes in, let's say, gets back to double-digit revenue growth. EBITDA has actually expanded like by a hundred percent. That wouldn't be unusual. It's doubled. Okay. So it's profitable and it's growing. All right. We could consider an IPO, we could sell it to a strategic, we could do a strategic back sponsor, we could do a sponsor-to-sponsor trade.
SPEAKER_04Okay. All right. What's the tip, what's the typical avenue then for uh for like what's more, what's the most likely outcome? Because there's uh depending on you know the the public markets, like the way where the global macro economy is, micro economy, you know, all that stuff. Like it it there are great companies that try to go public in bad times and they get punished horrifically for something that I don't think is really necessarily their fault, it's just circumstance, right? How do you if if you're if you're trying to like take the path, the good path, what's the most likely outcome and and where do you see companies being successful?
SPEAKER_02You probably didn't buy a company in private equity unless you thought there was at least a plausible strategic outcome. Okay. Okay. So tip typically you would underwrite it and say, like, here is the words that would get used are here's the exit universe, what that means, like de demystified. That's like what are the set of companies that may reasonably buy this company? Okay. And so you got a strategic exit universe, your fallback is sponsored back strategics. Your fallback from that might be a sponsor to sponsor trade.
SPEAKER_04Okay. And and then so let let's let's say let's say you go public, because that's that's a that's a cool, cool exit, right? Every you go public the company goes public, it is now free from its from its backers and creditors and and at least in in part, right? How do uh I think the question that comes on my mind is I'm an employee there. How do I get paid on that? And and and where am I in the pecking order? Because I imagine it's pretty far down.
SPEAKER_02Yeah. So let's take a real one. We sold Venify to CyberArc, okay, published transaction, combination of cash and stock. And so what typically happens in that case is some portion, first of all, the structures of these deals all vary a little bit, but I'll give you the parameters, and you know, these parameters vary from zero to a hundred percent, and then I'll give you like what's common. So in some cases, in an all cash deal, all right, everybody's ownership, whether it's options, it's you know, some sort of like private equivalent of an RSU, all just gets converted to cash, you wind up with a check. Okay.
SPEAKER_03Okay.
SPEAKER_02And even if that company was sold for cash, going into, we'll just take an example, you know, CyberArc, right? Yeah, CyberArc had a had a sold stock, right? They had a stock, right? In that case, if it's an all-cash deal, you're gonna take your cash away. Maybe you wind up working for cyberarc, maybe you don't. All right, cyberarc continues to have a stock, all right. In a cash stock deal, sometimes what happens is a portion is paid in cash, a portion is in stock. In private equity, sometimes that stock is held by the private equity firm, and that's because the distribution of that stock can't go directly to employees, all right.
SPEAKER_01Okay.
SPEAKER_02Typically, in these scenarios where a strategic buyer is involved, the employees that are gonna remain on with the company might get some stock in exchange for their new role. So oftentimes when you hear somebody say, like, okay, I just got stock, it might not have anything to do with the exit at all. It actually might have to do with the fact that they're now working for the new company. All right. Yeah, okay.
SPEAKER_04So I that that I've seen I've directly been a part of that. That's interesting. That explains it a lot better than I had it than I understood it at the time. Okay, that makes sense.
SPEAKER_02Here's do you here's why. Let me try to help you with the why. So, and let's take your scenario of where we where it went public, because this is applies to there, and let's just say this is in case you have international folks, I'm gonna use the US securities rules. Okay, they're sort of the same around the world, close enough for government work. All right, you're not gonna be able to sell all your stock right away, all right, because there's gonna be rules around how long you have to hold or an agreement in the deal for how long you have to hold things like that. So if a stock-based transaction goes down, it's not unusual for the public company to say to the company that they're buying, hey, listen, here's the parameters on which you can sell your stock. That way there isn't one day where all of a sudden a big bunch of shares flow into the market and impacts the value of the stock price to other shareholders. Okay. So it's totally above board, it's totally fair. So that oftentimes is managed by you know the private equity firm on behalf of the employees. In that case, they're going to go sell that stock based on some agreement that they had with the buyer. And when those when that stock is sold and the cash is collected, the distributions are paid to the employees. Does that make sense? Okay.
SPEAKER_03Yeah, yeah, yeah. Okay. All right. I think that I think that gets us. Let's see. What do we do we miss anything in this conversation?
SPEAKER_02Trying to think of you know, man, we went from companies being born to companies being sold.
SPEAKER_03Yeah.
SPEAKER_02We we talked about private equity, we talked about venture. We didn't touch a bunch on growth equity. I don't think we have to. Everybody should just know that's like a different, it's an added round, okay, to pick up on where we left off the last time. Those people very rarely are executing any of the things that we talked about. They're just putting capital in at a time that's important to the company. We've sort of talked about debt. We didn't spend a lot of time on it, but when you do a leverage buyout, the debt is the leverage. It's the L part of the leverage buyout. In those cases, you're taking on an obligation like you would in your personal life. So when you're thinking of your company or you're working at the company, there's a debt obligation. I want you guys to think of it like a mortgage, all right? And whether or not you can continue to make your mortgage payment. All right. We talked about a cash sale and a stock sale. By the way, I don't think one of those is necessarily better or worse. So I don't think if you're an employee, you should be worried about that too much. Like everybody's incentives in that moment are profit maximizing. So you know, I don't think there's a whole lot to do there other than maybe understand the mechanics. So I guess I'll go maybe Raf as we wrap up wake way back to the beginning. We went through a few years where the market wasn't particularly rational. And I guarantee there are audience members who are working at companies who struck their deal or took their money or were started or incubated during that period of time. And I think what got me to this podcast with you was the notion that you worry about whether or not you know you and some of your friends are in the right spot at the right time. What I would hope you can do across these couple of episodes is pull out some of the key points to think about when you're reflecting on the company that you're working for today and whether or not it's well positioned for the outcome that you're
Leverage Buyouts Debt And Bankruptcy Risk
SPEAKER_02looking for, or at least gives you maybe a better sense of how you can value the stock that you've been granted in the company or the options that you've been granted in the company. So I don't think I have anything to add other than to say what I hoped to do when I showed up with you to do this was give enough insight and sort of financial literacy to folks so that they can reflect on their situation and think about whether they're in a good spot or not. I and I hope I help with that.
SPEAKER_04Yeah, definitely. I I mean I I I certainly you've you've added color and and back the the what and the why to a bunch of things that I think a lot of us have heard. Words we've been we've heard tossed around, you know, and and that like you you sort of go, yeah, yeah, I get it, but there's yeah, yeah, I get it, and there's oh I understand, right? I think I I I'm much closer to oh I understand now because there's a lot of there's a lot of stuff that goes into trying to understand what not just what phase or where the company is, but like what the right strategy is in that moment from from the CEO down to to individual employees, right? Should I be work working, worrying about the money we're spending as it applies to like, hey, are we having too big of a party? Are we should should we be having should we be doing this? Should we spending money right now on getting our name out or improving our product or hiring more sales or like knowing which and I think that's that's really like where you get good see really good CEOs and and then people that just sort of you know are are well not and and that is helping company the company they work for guiding that through. And if there's anything I've learned in in the experience of this in real life is that it's it's not as simple as as we would like. This is a very complicated process. And even if you those that understand it well still need to make sure that like their plan, like your VCP gets gets executed on. And if if the if the staff and the leadership that you're working with isn't on board with your VCP, then as they say, you're gonna have a bad time.
SPEAKER_02And maybe like two little thoughts to to round this out. And remember, the market doesn't what I say to my like financy friends, so I'll let you in on my like little finance we session for a second. Like, it's like remember the market has no feelings. So you could have had a great VCP, you could have executed it well, and the market might move away from you. So, like right now, I would use com stocks as an example of that. Communication stocks are hammered. They're actually not doing any, like they're not meaningfully worse than they were a while ago. The market's moved away from them. So, you know, one, you can have a good plan, you can execute, and you can still not win. I know that doesn't feel great, but that's sort of how the market works. That's one. And then, you know, two, I think if I had a hundred of my CEO friends hanging around and they all said we all like took a poll on like one piece of advice that I could give to, you know, whoever listens to this, it'd just be like, remember you're a shareholder too. So, you know, when you are making the decision about the big booth at the event that we joked about, or the big SKO party, or whether or not you're gonna do that next product thing, or whatever it is, you know, it's your future, your shareholders too. You know, don't whether you feel like you are a passive participant or not is different. You are an active participant in companies like this and making decisions that are gonna move you further towards a successful outcome or further away from one. And, you know, when you're in the ubrus of the moment, especially in security, because there's a lot of money flying around and a lot of people doing a lot of cool things, it's easy to lose track of that. I just tell you, you know, like when you when you do an exit finally and you go and you cash the check, nobody at the bank ever looks at your t-shirt and says, Hey, were you at black hat, blah, blah, blah, or DEF CON, blah, blah, blah, or RSA, blah, blah, blah. Yeah. Right. None of them ask any of those questions. Right. Yeah. So, you know, just play an active role. Hopefully, we helped with a little bit of financial literacy. I know this is not the traditional episode for you guys, but I hope it helped.
SPEAKER_04Yeah, I I think I I I I made the I made the conscious decision, Patrick, to to start bringing on a lot more of this type of content to the podcast because there's a lot of great content out there. It talks about the latest hacks, the latest news, insights on some of the other like cyber-y stuff. But I I think financial literacy, especially in our field where we just get it's so easy to get hyper-focused on you know which bit to flip to get what result. Like the world of finance still governs whether you get paid at the end of the day, whether your paycheck comes. And you know, if it's one thing I have 100% learned, it's the better idea doesn't always win. Right? It it's we've seen it time and again. I keep bringing up, you know, Motorola versus US Robotics and the 56k modem wars, K Flex versus USR. One had the better product, the other one spent more money and marketing at the right time. And the rest is history.
SPEAKER_02George Kurtz stood behind me in line at an investor conference in 2014, I think it was, in Southern California. Well, I was running a $210 million company called Guidance Software. All right. And I think it is safe to say that if, first of all, he wouldn't be at that conference today, he wouldn't have to go anymore. All right. And and in the off chance that he did, I'm sure I would be behind him in line. So there's been a lot of successes and failures made in this business. Not all of them are obvious. The you know, best product doesn't always win, the first product doesn't always win. Yeah. I don't know. I think it's a really interesting time. I feel like we're probably wrapping up, so I'll leave you guys with this. I do think to the extent you ever follow me on any of this stuff, you'll hear I think that this is probably the most impactful time in the history of tech that I have seen. I am old enough to have lived through a few. And so my one parting piece of advice that is not related to the company, it's just related to all you is if you're not working on the most exciting thing in your career right now, take inventory and take stock and go find a way to go work on the most interesting thing that you think you can work on at this point in your career because this is the time to make that bet.
SPEAKER_04Oddly enough, I uh that is advice you gave me about six months ago, and I I took I took stock in that. Yeah, I'll give you a little personal, you guys that are listening. I had uh I had a friend of mine call me right around that time and and pitch an idea, and and I I I made the move, and this is the most exciting. Like, you know, I've been over to binary defense and work with Dave Kennedy, and like it is it this is the most exciting thing I've worked on in my career by far. And it is good, it it is a crazy fast time, I think. In our market, like there are entire, and I know we're over way over time, but I don't care. There are entire markets, like the software
Exit Paths And How Employees Get Paid
SPEAKER_04market at any given point in time. Like Kramer talks about this, all these other guys, investor guys talk about it. Like on Monday, the software industry is decimated. On Tuesday, they figured out a way to leverage AI to become amazing. On Wednesday, they're back to being decimated. Like, holy crap, can somebody take a breath for a moment, right? And and and you like you said, sometimes the market moves away from you and nobody knows why. Sometimes the market moves towards you, and you've got to capitalize on that moment. So I thank you, Patrick, for sharing a whole bunch of financial literacy for uh for us. This is huge, and I'm I I'm gonna I'm gonna put this one up and and this will be a favorite. And I hope you guys are listening come back to hope you've gotten a chance to check out Patrick in a in a cheetah print track suit because only for you, that is a it is a sight to behold, ladies and gentlemen. He he did it, he said he'd do it, and he does it. Man of his word. All right, buddy. I'm glad I ran into you at all those years ago at that conference in in Vegas, and you've been uh you've been a good good guide post along the way. So thanks again for joining. Folks, thank you so much for listening. If you get a chance, follow Patrick on LinkedIn. He's always he's always on some show somewhere. And I make I make a habit of figuring out like where the next podcast or what the next show he's on and listening because there's always something that you learn. So hopefully you learned something. I'm guessing you probably learned a lot of something in these
Final Advice For Your Career Bets
SPEAKER_04two hours or so with us. Thanks for listening. We'll catch you guys another time, another place, another Dama Security Rabbit Hole podcast with some more great content. We'll see you next time. Bye-bye.
