Private Equity Software Investing with Adi Filipovic

Sean Mooney: Welcome to the Karma School of Business, a podcast about the private equity industry, business best practices, and real-time trends. I'm Sean Mooney, BluWave's founder and CEO.

In this episode, we have a fantastic conversation with Adi Filipovic, managing director with Resurgens Technology Partners. Enjoy.

I'm super excited to be here today with Adi Filipovic. Adi, thank you for joining us.

Adi Filipovic: I appreciate you having me, Sean.

Sean Mooney: I've been looking forward to this one for a long time. It's going to be not only a fun conversation, I think it's going to be also a real timely one, because we're going to dig into some of the things that are going on in the software world, which is obviously a period right now of change, but also tremendous opportunity.

Before we jump into some of the topics there, I always like to start these, Adi, with getting the story of you. So can you tell us a little bit where you grew up, college, and then ultimately how you got into private equity?

Adi Filipovic: Yeah. Whenever somebody asks me, "Where are you from?" I always ask, "Do you want the short version or the long version?"

Because the long version can go on for a little bit, but I'll try to be succinct. So I was born in Bosnia in the early 80s, and obviously we went through a change of turbulence in the 90s. So I came to the States in December of '94, which was a couple of years into the pretty brutal war and conflict that we had in former Yugoslavia, and specifically in Bosnia.

So we came to the States as refugees during that time. At the time, US had a very friendly immigration policy toward Bosnian refugees, so if you want examples of what bad immigration policy can do, look no further than me. That's how I and my family ended up here. We ended up somewhat randomly in Augusta, Georgia, which is a typical path that most Bosnians come to from Bosnia to Augusta, Georgia.

But it was a blessing in disguise to end up in a small town where we got a lot of help in a lot of different ways and made that a home. And so that's kind of where I grew up. Went to middle school and high school in Augusta. My parents still live there. I married my high school sweetheart, so she's from Augusta, so Augusta's been kind of the home base, or rather the state of Georgia.

So that's the early first 18 years or so.

Sean Mooney: And you're in Atlanta now, and that's what? Maybe an hour or so.

Adi Filipovic: A couple of hours with no traffic. Most of the time from Augusta to Atlanta, maybe leaving Atlanta, and then you're home free. But yeah, it's 150 miles away, and I came to Atlanta right after college.

So out of high school, I ended up going to Furman University, which is in Greenville, South Carolina. I played football and basketball in high school. I really wanted to play a college sport. I'm 6'3", so at some point I realized, despite that basketball was the first love, that I wasn't going to do very well being a 6'3" power forward with not an impressive vertical jump.

By the time I got to junior or senior year of high school, I was pretty focused on football. And at the same time, even then I wasn't good enough to play ACC, SEC ball, I'm the only child. So I went through this optimization of, I want to go to a good academic school, and I want to play football, but I want it to be serious, and I wanted my parents to have a chance to see me play most weekends, so they don't have to get on planes and all that.

So that was a pretty small set of options. Furman was one of those. They had a really good Division IAA program, and I was lucky enough to get a chance to play football there on a scholarship, so that's where I went for college.

Sean Mooney: And what position did you play?

Adi Filipovic: I was a right guard in my final senior year, so I was offensive lineman. And there's a pecking order. Started out as a left tackle, and if you're not good enough, they move you in, and they move you in. When you finish at guard, there's nowhere else to go. At that point, if you can't play, then you just can't play. Luckily, I was just good enough to make it there. But yeah, I was a 290-pound right guard by the time it was all said and done at Furman.

Sean Mooney: Holy mackerel. Was your job to be a full-time eater for a while?

Adi Filipovic: Yeah, it really was. I don't have this huge frame. 6'3" is a decent size. I'm not meant to be 290, so it took a while. I got to college at 245 or so, and then put on 45 pounds over a course of four and a half years. So it took a while.

It took real effort to get there. And it was interesting. After I got done playing, because I redshirted and stayed for my fifth year, we lost our final game on Thanksgiving weekend in the great state of Montana. And from that day, in the next 40 days, I lost 40 pounds. It took me four and a half to get there, and it took me 40 days to return to homeostasis.

Sean Mooney: I can't even imagine. The few people I've spoken with about this, and they're like, "It kind of takes the joy out of eating when you're bulking to the weight."

Adi Filipovic: Yeah, it felt that way at the time, but now in my 40s, it's like, ooh, there were some benefits of just not-- literally not caring what you eat or how much you eat.

Sean Mooney: All the ice cream bar you can want for.

Adi Filipovic: That's right.

Sean Mooney: And then after college, what was your path into PE?

Adi Filipovic: It was truly random. I was good at school, and I was trying really hard to be good at sports. I was a Math and Econ major. Because I was good at both of those, I thought I should keep being good at those, and so my not well thought-out plan was to go get a PhD in economics, and that's what I did.

I applied to a number of programs, and that was it. I finished Furman because of the redshirt year. I finished in that end of November, December timeframe, and I had this eight-month window until the following fall to start my PhD programs. I was waiting to see where I was going to be admitted. And I went back home to Augusta.

It was great to be there over holidays to see all my friends. I lost a bunch of weight, and we got together, and then everybody went on their way. It was middle of January. It's like, "What am I going to do for the next eight months until my PhD program starts?" I never had an internship. I always stayed on campus to train with the football team.

And so somebody gave me advice "You should network." I was like, "What does that mean?" He said, "You should go meet people." I was like, "Okay." There was this guy, Fred Sturgis, that went to Furman 12 years before me, played football. Fred coincidentally was at HIG Capital, and at the time was running the tech practice at HIG, and I met Fred.

That's basically how my intro to private equity happened. I wasn't looking for a job. I was just looking to meet somebody. After we met, he asked me, am I looking for a job? I said, "No, I'm just trying to explore what am I going to do in the business." I knew I didn't want to be a professor after a PhD. So What happens when I come out five years from now with this PhD?

How do they view me with a PhD? It's not that favorably, it's like, "You have zero experience, a lot of academia."

Anyways, that conversation led where he, credit to him, proactively offered me to kind of help me. I was like, "Would you want to intern?" HIG, at the time when I joined as an intern in 2007, it was going from a venture firm to a growth equity strategy, and the idea of having more junior folks on the sourcing front was an idea that they were exploring.

So that was going through his head. In my head, it was like I wanted something to do. That's kind of how I got into it. The plan was for me to leave five months later in August and start my PhD program at Duke. And I don't know, after a month or so, again, not planned, not predicted, he said, "Hey, this is working out great. We could see you here as a full-time." They never hire somebody out of undergrad, and again, this is a little bit of the shift of dual-sourcing execution strategy. "This has actually proven to be pretty interesting. You can have a full-time job here if you want it. Just kind of decide in the next four or five months."

And so I had the benefit of working there for four or five months and forming some point of view on what that means and what have you. And so basically, I deferred my PhD for a year, and then eventually I kind of deferred it for a lifetime. It was through dumb luck that I stumbled into it, and it's a little bit embarrassing.

It was like I'd stumbled into one of the prolific private equity firms that have existed. And obviously we can talk more about it, but here I am 20 years later, and us in a relationship with Fred. It's gone long past. He was my boss, mentor, all that. We started a private equity firm together 10 years ago.

That was the start.

Sean Mooney: Hey, as a quick interlude, this is Sean here. Wanted to address one quick question that we regularly get. We often get people who show up at our website, call our account executives. They say, “Hey, I'm not private equity. Can I still use BluWave to get connected with resources?" And the short answer is: yes.

Even though we're mostly and largely used by hundreds of private equity firms, thousands of their portfolio company leaders, every day we get calls from everyday top proactive business leaders at public companies, independent companies, family companies. So absolutely, you can use us as well. If you want to use the exact same resources that are trusted and being deployed and perfectly calibrated for your business needs, give us a call, visit our website at BluWave.net.

Thanks. Back to the episode.

The thing that always amazes me on these conversations, that I'm privileged to have with people like you, Adi, is life can be so serendipitous, where you just don't even know, but you're on this path, and it takes you there. I try to be as thoughtful as I can, though, because I have kids now who are coming up, and one of the things that I'm mentally noting down here is just the power of seeking out mentorship as you're getting ready to leave college or leaving college, and just how impactful that can be.

And then also, if you just have the audacity to ask people to help, they usually will, particularly through connections through school or sports or something like that, if you find that. So I would just encourage, our listeners, who are maybe younger and coming up, is listen to Adi here, because that can have a profound impact on your life.

Adi Filipovic: There's so many interesting reflections on myself at that time. One is this topic you mentioned, mentorship. Two is, I tell people all the time, it's like it's not what job you take or what company you work for, optimizing the people that you work with. And the other thing is, we all struggle with this, and no matter how much you've been in business, using the phrase, "What does great look like?"

Chase excellence. Go somewhere... I mean, I love sports and football analogies and all that, and I'm not an Alabama fan, and now Georgia's obviously creeping up to similar status. But man, what a standard under Saban. So extrapolate that to other things. Go somewhere where they're objectively really freaking good at what they do, and watch what that means on Tuesday at 3:00 PM and Thursday at 9:00 AM, and every single nuance and detail.

And so I was ambitious and all that, but I stumbled into some of that to start my career, and how lucky did I get? This is another really interesting reflection. I remember when Fred asked me, again, not having thought about it, I wasn't interviewing for a job, he's, "What do you want to do?" And I literally told him, "Well, I know I what I don't want to do. I don't want to cold call or be selling stuff." That's the way I said it, because I thought I was a math major, like I should optimize my brain. That's the only thing that I have. And I was like, "I don't want to be cold calling." And literally, the first job that I took out of college was reaching out to companies, cold calling, and I'm glad I did, but the one thing that I thought I didn't want to do was that. So, you don't know very much at 22.

Sean Mooney: 100%.

The next question I always ask is, we'd know you better if we knew this about you. We've learned a lot. Is there anything else that you would think would be like, "Here's another thing that, if you knew this about me, that you'd know me"?

Adi Filipovic: You can do a lot of extrapolating or stereotyping what it means to be a refugee, so that's about as foundational in terms of getting to know me. And the other thing that's on the more kind of fun side, but pretty telling and important too, I think I'm on a pace to hit about 75 live events this year.

I think I hit 70 last year. I've been north of 50 for a decade, live events. It's mostly sports, but a lot of shows or concerts. I'm very much in the chase of experiences at live events. 75 events with an 8 and a 10-year-old and a private equity job, that's a pretty serious commitment or lack of sleep to get there.

Sean Mooney: That's an amazing amount of being with people. And how much of this is as the world increasingly turns digital, people want the human-together thing?

Adi Filipovic: Yeah, it might be. The thing that I like amongst many things, community. I mean, my following Bosnia's national team is that on steroids, and I've been doing it for 20 years, and I travel to these international games to be with the people that I'm not around in Atlanta.

There's also... The world is so scripted and staged to some extent. In our world, you get on there, get on LinkedIn, and everybody's doing awesome. For the teenagers, everybody's doing awesome on social media, and you go to a live event, and you can game plan, and they do more than ever and all that, but it's spontaneous, and it's reactionary, and it's world-class, and that's amazing to see somebody make plays in a natural, instinctive, unscripted way.

And music is the same way, too, especially if you don't play the same set list every night. It's improvisational and real and authentic. It feels that way.

Sean Mooney: I 100% agree. It's just one of those things that's just... It brings you so much energy and adrenaline and joy. So, like one of the things we do in Nashville is we get season tickets to the NHL Predators here, and it's just so much fun when you get to go there, and the exhilaration and the unpredictability.

So I love that.

Adi Filipovic: And you got good music there too.

Sean Mooney: Yeah, we do have really good music.

I'd love to maybe turn the chapter here. Some of the things that I think are so important to people's own journeys, if you will, is this sense of like tenacity, grit, resilience, ability to overcome tough times, right? And there's plenty of that going on, it seems like forever now.

I'm curious, Adi, can you share something you went through, and how you overcame it?

Adi Filipovic: Yeah. I'll give you maybe even a laundry list of examples to illustrate the more important insight for me. It's not like I'm seeking hardship, far from it, but it is pretty clear and pretty obvious that anything good and meaningful and fulfilling has come on the back of discomfort and harsh, you know, hardship.

So just because it's hard and uncomfortable doesn't mean something good is coming. But damn it, if you're in that steady state, it's really hard, other than luck, to expect something fulfilling to come out of it. And so I don't want to be a refugee again, that's for sure. But man, what an incredible thing from that to here.

So to your point, this tenacity, resilience, wherever that comes from, and on one hand, I think I've demonstrated to myself that when uncomfortable things come, I've been through them before, I'll get there.

We started our firm ten years ago, and all of it is hard. Fred and I were at Accel-KKR. I mean, that was hard. That was stressful. It was a great firm to be in. They were plenty good to us, to say the least, and so leaving didn't feel good. And then even after you do that, it's like, and now you've got nothing. You've got no fund, you've got no portfolio companies, you've got no team, you've got no pay.

My first child was born exactly that same time. I was like, "This is great. This is overwhelming." COVID period was hard and stressful for all of us personally, professionally. We were seven, eight employees, and I remember one time we went from seven employees to ten, and the three that we added, 30% of our employee base we've never met, and it was like I was panicked about that.

Just like, "How is this going to work?" It's an apprenticeship job where we're not even in the same room with people. So COVID period was hard and stressful. I mean, this period that we're going through right now is really stressful. It's as difficult as anything else for somewhat unprecedented reasons.

I think I've gotten reasonably good at dealing with, yeah, the macro thing happens, and you can't control that. This is a macro event that has a lot of implications, so it's asking questions of what you ought to do differently at every single aspect of my job, and it's different than, "Hey, we're having a recession or economic crisis or global conflict."

It's like I can't change global conflict, but this is a macro event. In this job that we do, it doesn't feel good to get re-traded on. It doesn't feel good for a deal to fall apart. It doesn't feel good to go through a ransomware attack. It doesn't feel good for people that you depend on to walk out on you.

And so they all feel a little more personal when, to some extent, you're involved with all those decisions and having accountability, so...

Sean Mooney: One of the things I think I've learned over life is: life is more of a sine curve, perhaps at an angle, but it's a sine curve. It's not a line.

Adi Filipovic: Yeah, for sure.

Sean Mooney: You have 17 portfolio companies.

There's always going to be something good and always something bad going on through that kind of distribution. And so I would describe to my friends, it's, yeah, it's like living with noise-canceling headphones on, and every time there's something good going on, there's something bad going on, and they just cancel each other out.

I was like, "I just want to enjoy the good." So...

Adi Filipovic: I know. My football coach, he always said, "It's never as good as it seem. It's never as bad as it seems."

Sean Mooney: The age-old saying, "This too shall pass" is something that I've adopted. Yeah, the good times, they're going to be great, but they're going to go, and the bad things go and just you've got to roll with it.

I think, given your unique background as a refugee, that's got to be one of the most impactful experiences someone could ever have in their life, and no doubt it was tough, but no doubt it also played a big role in who you became today.

Adi Filipovic: Yeah, for sure. But at the same time, it doesn't give me immunity for being stressed about the things that people get stressed about in this industry.

Some things just don't feel good when they happen to you, and the fact that you went through harder stuff and it was a lot worse, I haven't quite been able to reframe my mind not to make me, whatever, disappointed, sad, stressed about certain things the same way that everybody else does.

Sean Mooney: That's a very good point, and that kind of dyed-in-the-wool mentality, you almost have to have that to get into PE and stay in PE.

That was always, as I reflected back, one of the biggest hallmarks, is that, as we talked about, tenacity, grit, resilience, because you just have to keep on moving forward.

Hey, Karma School listeners. This is Sean with a quick aside. Virtually every day, I'm having conversations with private equity firm professionals and business operators, and we're talking about the same exact thing: where and how do we actually start with AI? The answer is: you start with people who have already done it successfully for others.

This is exactly what BluWave does. We have built a one-of-one, invitation-only network of trusted AI-enablement providers that top private equity firms are using right now to create real value.

Private equity-grade quality, pre-vetted by BluWave, ready to go at a moment's notice. And they're not just for PE. Whether you're a PE professional or an operating company CEO, go to BluWave.net. That's B-L-U-W-A-V-E. We'll get you to the right resources so you can start on your AI journey right now.

I'm curious, Adi, private equity these days, the IRR and the returns are made on the build, not the buy. I'm curious, how does Resurgens approach value creation? What are the resources you bring so you can run towards the opportunities, run towards the challenges, and keep on plodding forward?

Adi Filipovic: It really was fundamental if you went and found the original files in the first year of Resurgens and emails and all that, and put it in ChatGPTs, like these people really believed in this operating model and value creation.

At the same time, it's been the hardest thing to take on. The job is hard and the industry is competitive. There's so many ambitious, smart people. The two things that are true, that our commitment to partnering with operators and bringing operators on and trying to bring value creation capabilities in-house, is that commitment has been real and earnest, and at the same time, it's been difficult for a lot of different reasons.

I think the holy grail at the highest of level is this hope that everything is integrated, that the deal side, the people that do deals, chase deals, underwrite investments, and the operators on our value creation team are fully integrated. We should strive for that, and we strive for that. At the same time, it's not always that practical or maybe even ultimately desired.

Sometimes it's not agile enough, right, that everything is coordinated and integrated and what have you. And so... But that's definitely the holy grail. The thing that we definitely strive philosophically is to have, if it's not entirely this sort of achieving holy grail of full integration, the decision-making within Resurgens, and I mean Resurgens, whether it's a deal person you're talking to, it's the principal that did the deal that's on your board, and Fred and I, or the number of operating folks that are trying to help your business, our decision-making process is predictable, stable, coherent, sensible.

You're not dealing with agency issues, and they're everywhere now. Meaning, I'm an individual, I have a job, I want to get promoted, and the pecking order and the decision-making body and how I appear to my supervisor within a private equity firm, and how they deal with the deal guy that underwrote the deal, there's a lot of complexity in all that.

And that complexity doesn't necessarily exist quite as much when everything is up and to the right, and people buy a company and two years later we trade it up and there we go. But when it's return to the basics, and we have to build value creation, there's a lot of tension in that. And so that coherence of decision-making and alignment amongst ourselves that you feel like you're talking to the one voice, even though there's seven, eight different people being involved.

But more specifically, within our value creation team, we've got four or five different buckets. So the firm has 45 or 50 people. Half of them are more like me, deal guys, and half are people that build their careers operating in businesses. Those value creators, there are four or five flavors.

There's the been-there-done-that CEO type, multi-time CEO and everything that comes with that. We have a lot of SMEs, Subject Matter Experts, so former VP of Sales, former CMO, Head of Product, so people that are deep in their functional domain, and they engage with companies in the domain that they have expertise in.

We have a number of, you can call them Athletes, you can call them Value Creation Directors, VCP, but these are folks that are not necessarily masters of any single functional area, but are responsible in quarterbacking the full value creation plan, and are helpful across many different areas, but they're not a three-time CEO, for example.

We clearly have folks that are in the analytical support, similar to the Associate type on the deal side, people that are analyzing and crunching data, and being hands and feet of a CEO when they need support. And then maybe most importantly is, we invested early for a small firm into talent, and we have a number of team members that do nothing but think about human capital, anything from operational things like systems and people-ops type of function, to recruiting, to deep assessment, and proactively thinking if we think this business needs to be here three years from now, how do we today start thinking about the talent gaps that will emerge, and how do we complement what we have and don't have today?

So we've invested meaningfully in this sort of human capital capability, because at the end of the day, once you buy the business... you've got the ones and zeros that you've got. You can change the ones and zeros. I guess the best thing you can do is be thoughtful and deliberate about human capital.

Sean Mooney: We are privileged to get the opportunity to see how you and your team add value in addition to capital.

And the one thing that's really amazing to watch is, the impact is real. It's not only the capital, it's the support that helps them come along the way. So it's fun for us to be able to look and see how a firm like yours is able to bring true value to the PortCos to help them on the journey, versus maybe, "Here's capital and good luck, and let's come to Atlanta."

Adi Filipovic: Yeah. I appreciate you saying that. And sometimes we lose the forest from the trees when you're in it, and from quarter to quarter it's like, "We should make more impact." Look, the deal guys always feel that way. It's like, "Ah, never did a bad deal." But then you look, things that are two, three years in the portfolio and the changes that have been made.

Again, it's not cookie cutter, it's not easy, and it's not predictable, and it varies how much impact we have at this company or that company. But in totality, I'm certainly pleased of what's been accomplished and how we go about doing what we do.

Sean Mooney: 100%. Let's talk about one of the things that I think a lot of people are wondering about right now, is the deal market.

It's been something that's been trying to pick up pace over the last couple years. It's like bumper-to-bumper traffic. It gets going, and stops, and gets going, and stops. I'm curious from your perspective, what does the deal environment look like today, and maybe some of the "Why?"

Adi Filipovic: Well, there's a couple of easy, I think, fairly factual things I can say, and then there's a lot of hard things to talk about.

The easy one is, the deal environment ain't good, in Southern terms, and the reason is largely the AI disruption opportunity. I think those two things are not debatable. The economy isn't particularly great either. I don't follow a lot GDP growth. I'm aware of all of that. But it doesn't feel like the economy is humming.

There's a lot of paralysis, some of it, again, with the transformation to AI. The geopolitical environment is... I don't know who can say that's good. I guess it could be worse. I mean, hell, I've seen worse. So hopefully we'll just stay at this level of bad, and we won't escalate further. But yeah, the deal environment is not good.

The idea that, if you went two years ago and said, "There are software private equity firms. They do software, they exist for software, they've raised many funds, and that there are software private equity firms that openly or secretly are not investing in software in the moment," that would be a shocking phrase, but that's a fact.

Now, I don't know that'll be forever and/or next month or what have you, but there are investment committees that are in the wait-and-see mode, and there is a little bit of this disconnect out there. I mean, people see multiples, and know the deals aren't getting done and all that.

There's a little bit of this disconnect, because there's still a lot of us in the industry out there whose job is still to build pipelines, and there's still a lot of "Yeah, I'm interested. I'm open for business. I'm open for business." And people are doing work and analyzing businesses, and again, it's all relative. I mean, there are people investing. We've made three platform investments this year, so have many other firms made investments. But relative to what we experienced two years, T minus 2 and T minus 8, 10, the amount of people being risk-on is just very different.

I sometimes get a sense from founders or even advisors just like, "Ah, there's a lot of people claiming they're interested. I'm still getting a lot of calls. There's not many deals, so everybody's looking at stuff." And that's all kind of true, but there's also the difference between, "Yes, I'm interested in getting information about your business," and talking to you and wiring the money, and the wiring the money part is different than it's been in the last 10 years we've been on this boom and rise of software investing.

Sean Mooney: I'm curious, when you look at the software market, which has been on this transcendent run for a long time, and then it's pausing or maybe more than that, how do you then look at that and, maybe paraphrasing Warren Buffett, "Be greedy when others are fearful"? Like, how do you find the opportunities in that to say, "Well, this also creates tremendous opportunity as an investor to buy at rational or appropriate levels, but then also bring value to these companies to, while others are circling wagons, we're going to plow right through the storm and we'll be on the other side before everyone else's even starts."

Adi Filipovic: Yeah, there's a lot there, and I'm too brainwashed by University of Chicago kind of rational economics saying, "There's no alpha in all that," to allow myself to dissect Warren Buffett too much about irrational behavior, rational behavior. It takes guts and perspective, and let's be honest, the stress that's been put on the system and the opportunity is pretty new, and we're all trying to get our hands on some tangible experiences of how it's translating, where it's translating, both on the risk and opportunity side out there.

I mean, I think you can talk to a lot of software buyout investors, and nobody is disregarding AI. You can't. And at the same time, I think the sentiment for many people inside their portfolios, the risk side, you can't put your finger on it quite yet. It's not manifesting itself. It's not like many of our portfolio companies are waking up to vibe-coded solutions that are changing retention rates.

I'm not saying some of that won't happen, and I'm not predicting anything here, so that disclaimer. But given the fact that it's not manifesting itself, you're having to think about and project how it's going to manifest. And it equally, maybe even more so on the opportunity side, a lot of people are talking about how excited they are about AI, and what it can do, and I am too. At the same time, the actual value creation realization that people have tasted, experienced, I think it's at the very beginning stages.

Otherwise, we would be seeing a lot of private equity deals done on the back of AI modernization, some type of a theme, either buying a tech-enabled business services and transforming it from a 50% gross margin business to better than software. I don't know that there's many of those deals that have gotten done with that thesis.

That's coming, but I think people are trying to better understand, "Where can I apply this new tool methodology with a higher degree of confidence than we have today?" We all know there's a lot of legacy software that the world is a victim of, where we can modernize that using AI. I just don't think our industry has tasted enough successes there yet to see that run wild. But it will run wild when we get a little more examples and confidence of it actually working.

Sean Mooney: I agree with that. It's early, but it seems like the shift this year is, the models are starting and getting powerful enough that they're actually delivering ROI, and maybe I'll personalize it. And this was probably second half of last year.

Behind the curtain, we're a data business, and pretty much driven by what used to call machine learning. Now it's called AI. And so we had part of our business on a pretty dated tech platform. Ten years ago, it was cutting edge, and it was really novel and clever. And we always knew we were going to have to rebuild it, and I'll be candid, I was like, "Ugh, let's do it next year. Let's do it next year."

And we said, "Well, let's just try this with some of the code development tools that exist now. Let's see how long it takes to take this thing off, test it, do the QCQA, validate it, put it out there." And we were thinking some of these things would take many, many months, if not years. And we did it in three weeks.

And so part of it, I think, that starts creating these opportunities for everyone is, the velocity with which you can do the things that you wish you could have done before is speeding up, and maybe the neutralizer is, in a perfect world, if it's just you doing it, then you get to reap all the benefits.

But then we're in a competitive world, and people match. Where I start getting really excited about these tools is every dollar now goes three dollars further in, in a couple places in our business. Not everywhere, but it takes some audacity to use them. Does that kind of resonate?

Adi Filipovic: Yeah, for sure.

There's no doubt that step function changes in how this is all done are going to happen. How fast and how they will manifest, I think that's what we're all trying to grapple with to some extent. I mean, there are some kind of undeniables. You can create product a lot faster and put it out there, and that will be a lot more important.

At the same time, that's what you get trained to do, a little bit: to be cynical and ask yourself questions about businesses. Prior to AI, was there a whole shortage of products? That's why we have legacy software out there? It's like, "No." Every piece of software that has a MPS, everybody somehow has a MPS of 90, but if you do a real MPS study, it's like negative 50 for a lot of ERP, CRM, and what have you. You know, it's like for every piece of negative 50 software, NPS software out there, meaning people that don't like it and has 97% gross retention, there are 10 better solutions that exist.

It's just that people aren't switching. So why is that? It's not because products didn't exist. Now look, the example that you gave, like it was impossible to switch, and now the way of doing things today, maybe that will change. And so I think those are the types of things that we're all swimming around and trying to understand.

But it's exciting. We weren't going to get there, and maybe we did, maybe there's smarter people about how assets were allocated, and there was a long way to go with private equity, a lot more money. But a lot of the returns that we all benefited from, founders, bankers, investors, LPs, was more money on top of more money, bigger funds, more firms.

And I'm not saying that there wasn't innovation. There was a lot of innovation. There's a lot of company creation, but the ratio of those two was at one level, and I do think this AI has a chance to tilt the ratio in terms of real innovation of value created. But it needs to create value. There's a lot of AI for the sake of AI, and which is necessary.

We all need to pick up the capability and see what's possible. But a lot of spend of money and time today is a little bit of AI for the sake of AI, and it needs to fundamentally do something that we previously couldn't do in this use case or that use case. That's the types of things that we're looking for from our portfolio companies and also new investments. I'm confident those are coming.

Sean Mooney: 100%. As we bring our conversation full circle here, one of the common things about successful business builders is they're voracious readers and ingesters of information and off-the-charts kind of curiosity. Couple that with the tenacity, the grit, the resilience, and the curiosity, that's part of what you need to be successful, I think, in PE, but also elsewhere.

I would be really keen to understand, is there a book that has made an impact on you, and you have maybe some takeaways for that, that we should take to heart?

Adi Filipovic: Yeah. I definitely don't read a ton, but the things that I read and I get hooked on, I'm deeply into them and again, introspective and think really hard on, and I reread pages.

Sometimes you read something, it's "What did I just read?" The book out there that a lot of people have heard of that I think lives up to a lot is this Thinking Fast and Slow. I think it was a New York bestseller, Danny Kahneman and Amos Tversky. Danny Kahneman was the first non-economist to win a Nobel in economics, and that book is very much in this behavioral economics, and there's a lot of life hacks in there.

It's not written for that. It's a study of how people make decisions. And so interestingly enough, I got really interested at a place where some of this thinking was maybe sacrilegious, University of Chicago, which was, there's a rational economist agent in all the models and the way things are done and so much new thinking innovation.

In fact, I'll couple another book called The Nudge that was written by Richard Thaler, who's a professor at Chicago, and I took two classes with him. He subsequently got a Nobel Prize in Economics two years after for the similar theme. And Nudge has a lot of these practical things. The theme is libertarian paternalism.

To think about, let's not force people to do what we think is good for them. Let's design certain things where they make what seem like objectively better decisions for them and for the world without imposing a cost. So I'll give you a perfect example: school lunches. You get in line, and there's a beginning and an end, and something has to be the first food that you can put on your plate, and something has to be last.

If you put salad first and french fries last, people will consume more salad than french fries. It's hard to say you're imposing a serious cost. You're standing in the line, you see the fries, you can restrain yourself, or you can just wait to get six feet, ten feet further, and put fries on. But you've got to design the order of food in the lunch line.

And we would all agree that on the margin, other than completely white lettuce with parasites, some healthy salad is a lot better than french fries. And so there are a lot of things like that about design, and how a rational economist would say, "Well, clearly you'll eat the same amount of fries, whether they're first or last, because it's right there."

And the reality is not the case. And so there are a lot of things like that about how decisions are made, and Thinking Fast and Slow builds a lot of foundation about things like an Endowment effect. I mean, these things in private equity, you see it all the time. Now look, the fact that I love this and I'm preaching it, I don't know that I'm particularly good at using any of these things.

But like, Endowment effect, you see it all the time. Endowment effect is like, "Because I did it, because it's mine." And you see it as, " I sourced this deal. I cold called, nobody picks up the phone anymore. They responded to me. I got them on the phone. Seems like a reasonable company. It must be a good deal."

It's like, all of that is true. The jumping off to the conclusion is like, "And therefore it must be a good deal just because they answered." It's all the endowment. It's, " It was so hard getting here, and I brought it, and therefore..." So there's anchoring, right? It's like, if you bid this price it could be completely silly.

We get a SIM that has no information on it, and you get forced to bid a price. And then four weeks later, ten times more than you knew earlier. But the fact that you posted an uninformed number is an anchoring point of how far you can move from it. Those are the types of things that come up.

It's a phenomenal read. It's not overly nerdy. I mean, the fact that it was a New York bestseller... i'm probably due to reread it because it's been some time since I last read it.

Sean Mooney: The whole concept of behavioral economics is fascinating. There's reasons we do things, and if we inform ourselves about them, we can't help but be better.

And certainly life hacks I've been a connoisseur of my whole life, because if my life was up to me, I'd be in a lot of trouble. So I can't wait to read those. If it's a New York Times bestseller, it's going to be ingestible by a mere mortal like me. And so...

All right, Adi, well, this has been an awesome conversation. I've learned all sorts of things that I wish that I knew before. So thank you very much for sharing this with us. You're busy and your time is scarce, so we appreciate the gift of your time and perspective here.

Adi Filipovic: Yeah, it's awesome. Thanks for having me. It's not every day people ask you to talk about yourself.

I'm thankful for that. So thank you.

Sean Mooney: That's all we have for today. Special thanks to Adi for joining. If you'd like to learn more about Adi Filipovic and Resurgens Technology Partners, please see the episode notes for links. Please continue to look for the Karma School of Business podcast anywhere you find your favorite podcasts. We truly appreciate your support.

If you like what you hear, please follow, five-star rate, review, and share. This is a free way to support the show, and it really helps us when you do this, so thank you in advance. In the meantime, if you want to be connected with the world's best-in-class, private equity-grade professional service providers, independent consultants, interim executives, AI advisors, and software tools, that are deployed and trusted by the best business builders in the world, including many hundreds of top PE firms and thousands of portfolio companies, and you can do the same whether or not you're in the PE world, give us a call or visit our website at BluWave.net. That's B-L-U-W-A-V-E, and we'll support your success.

Onward.

The views and opinions expressed in this program are those of the individuals presenting, and do not necessarily reflect the views or positions of any other persons or entities, including those referenced herein. No representations, warranties, financial, legal, tax, or other advice are made herein.

Consult your advisors regarding any topics discussed during this episode.

Private equity insights for and with top business builders, including investors, operators, executives and industry thought leaders. The Karma School of Business Podcast goes behind the scenes of PE, talking about business best practices and real-time industry trends. You'll learn from leading professionals and visionary business executives who will help you take action and enhance your life, whether you’re at a PE firm, a portco or a private or public company.

BluWave Founder & CEO Sean Mooney hosts the Private Equity Karma School of Business Podcast. BluWave is the business builders’ network for private equity grade due diligence and value creation needs.