Episode 155: Taylor McKinley and Chris Cassidy of Mainsail Partners on Integrating Operators and Investors

Episode Transcript   

 

Shiv Narayanan · 00:00:00

Hey, everybody, before we get started with today's episode, I want to take an opportunity to tell you about my new book, AI Marketing Blueprint. It just hit number one bestseller status across multiple categories on Amazon, and it walks you through a proven framework that we are taking our clients through here at How To SaaS and how to stay relevant and visible in a world with AI platforms.

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So to stay relevant, the book walks you through seven new rules that companies in all kinds of verticals and industries need to consider so that they can continue growing their pipeline and revenue, and ultimately their enterprise value. So if this applies to your business or one of the companies that you've invested in, I definitely recommend that you pick up a copy.

It's available on Amazon, on Apple Books, on Barnes and Noble, and even share it with your teams. Grab a bunch of copies so that you can kind of consume the content together and start to apply it to your business. And with that said, let's move on to the episode. Welcome to the Private Equity Value Creation podcast, where we interview leading investors, operators, bankers and advisors to help you answer one question how do we increase the enterprise value of our companies?

My name is Shiv Narayanan and each episode I will dive deep with a guest to help you become a better value creator and capital allocator. So with that said, let's jump right in and let's get started with today's episode. My guests today are Chris Cassidy and Taylor McKinley, and they are both part of Mainsail.

And what I really enjoyed about this episode is that Taylor is on the investment side of Mainsail and Chris leads their operations team or their growth team, as they call it internally. And usually we only have one guest at a time on this podcast, but we really wanted to have Taylor and Chris on together so they can talk about how at Mainsail, Taylor and Chris's team work closely together as they make investments and as they're trying to drive enterprise value.

And what's really interesting and different about Mainsail is they have 40 people on their growth team that are supporting their portfolio companies and working closely with their investment team, as they are vetting potential companies and figuring out the value creation plans for those businesses.

And I really enjoyed how deep Mainsail has invested in this area, because most PE firms don't have this many ops people to actually support their portfolio companies, and there's just so much value to be captured when it comes to pricing and product and marketing and sales. And lately it's been AI that's been been a big driver inside these businesses.

So Chris and Taylor share a ton of wisdom in terms of how they're going about that inside Mainsail, and how they've been able to create a ton of enterprise value. And I think if you are a PE firm or an operator or a GP and thinking about how to do this for your firm, I think there's a ton of great takeaways for your business.

So with that said, I'll leave you to it. Enjoy the episode.

Shiv Narayanan · 00:03:16

All right. Taylor and Chris, welcome to the show. How's it going? Great.

Taylor McKinley · 00:03:19

Thanks for having us.

Chris Cassidy · 00:03:20

Thanks for having us.

Shiv Narayanan · 00:03:21

Yeah. Excited to have you both on. It's a bit of a different episode. Normally we have one guest, and here we have two from the same firm. So why don't we start with your background in Mainsail? Taylor? Maybe we'll start with you and we'll go to Chris after that.

Taylor McKinley · 00:03:32

I have been in Mainsail for almost 15 years now. Um, I started on our growth team, which we'll talk more about, but that's a collection of former software executives that work really closely with our portfolio. Um, when I joined, Chris was at Mainsail, and I think he was employee six, and I was maybe 7 or 8 or something like that.

And then just over halfway through my journey at Mainsail, I switched over the investing side. So I've been an investing partner for the last several years. And then before Mainsail, I was the first product manager hired at a very small software security company called Fortify Software. It was Kleiner Perkins backed.

We were just shy of 5 million of revenue, and I had a fun run there for six years. We grew just shy of about 50 million sold to HP. We kept going and it gave me a good kind of look into what it takes to scale a software company. It was a fun ride. We we I'm sure we made a lot of mistakes, but ultimately we had a great outcome.

And it was a it was a great journey. And then that was 2012. That's when I joined Mainsail. And then before that I spent some time, uh, back in the East Coast in Boston at uh, management consulting firm called Parthenon and a smaller private equity firm in, uh, in Boston.

Shiv Narayanan · 00:04:45

Awesome. Chris.

Chris Cassidy · 00:04:47

Uh, I'm Chris Cassidy. I'm a partner on Mainsail's growth team. I've been with the firm for over 16 years now. I grew up on the East Coast, live in Marin with a couple kids and my wife. I worked at a couple of tech startups very early in my career and eventually landed at Yahoo! Right as the dot-com bubble was bursting.

I did a long stint at Yahoo! Uh, leading marketing and sales programs for their media businesses and helping to build products like Fantasy Sports and Yahoo Finance. And then in 2010, a friend of mine introduced me to the founders of Mainsail. Mainsail at the time was still building up the firm, but the founders always had the idea that they wanted to build a team of operators to help their portfolio companies scale and grow, and I was effectively the first person on that operations team, or what we now call our growth team.

And that, again, was more than 16 years ago, where, you know, it was it was myself. Now we that team has grown to more than 40 software and technology operators working with our portfolio companies. So today I run that growth team along with three other operating partners. We all have our, you know, lanes.

I focus on product technology that includes pricing and our AI labs team, which I'm sure we'll talk about.

Shiv Narayanan · 00:06:11

Yeah. Can you expand on that, Chris? Because 40 people on a growth slash ops team and a PE firm is quite extensive compared to a lot of other private equity groups, like how does how does that work. Like what is the mandate. How involved do you guys get? Just walk us through the model a little bit more. Yeah.

Chris Cassidy · 00:06:27

I mean, like I said, uh, the founders always had this vision of building a team to help management teams that the companies we invest in when it was just me. And even once we had a few members of the team, it was a very ad hoc project work. So if a portfolio company had a challenge or a need, we dove in and solved a problem and then over time, we built the network of executives, a library of best practices and playbooks to help companies.

We were able to leverage that work, you know, and make things more repeatable and scalable. And then in terms of how we built the team, we let the needs of the portfolio partners really dictate where we invested in the team. So we started with hiring executives and the core functions of a technology company, including product, sales, marketing, finance.

You get the idea. And in fact, Taylor, as you said, was on the product team back in the day. And then over time, again, based on the needs of the portfolio, we've hired specialists in areas like pricing, legal, payments, revenue operations and AI. And we believe that, you know, the special sauce, I mean, the idea of building a team that large and that specialized is that we are very hands on in terms of our approach to supporting our portfolio companies.

And I can give some examples of that now or later. But I think it's a different approach we've taken because of the stage of company that we're investing in a bootstrapped company with, you know, between 5 and 10 million of ARR, call it, doesn't need just more ideas or more advisors. They need actual help.

And so again, I'll talk more about how, you know, what we specifically do in that respect. And then over the last couple of years, really the last year and a half, we've really focused on building out the technology and product teams, hiring a number of tech advisors, a lot of them former CTOs, building this AI labs group, and really emphasizing the support we're providing on, you know, addressing the AI opportunity and challenges.

Shiv Narayanan · 00:08:29

Yeah, there's just so much support there that you guys are providing, I guess, Taylor, for you. The question would be on the investment side, is that a big reason why founders choose to partner with Mainsail as, as their financial partner?

Taylor McKinley · 00:08:41

Yeah, it's a huge reason. I mean, I think it starts with building the relationship. And so when we make an investment in a founder and a company, we've typically been talking to that founder for two, three, four years. I think our longest is maybe eight plus years. Um, so it's a long journey of building that relationship.

And we introduced the growth team members along the way. And our goal in that process is ultimately to be helpful, because if we can be helpful to an entrepreneur, it gives them. It gives them a view into what it would be like to have me as a partner. So we'll send people on site. We will sometimes help them recruit an executive.

We'll do all sorts of things to try and be helpful, because I think it gives them a perspective of what it would really be like to have a partner like myself. So it's incredibly helpful, it's incredibly impactful, and it's a big part of kind of the whole process of meeting entrepreneurs.

Shiv Narayanan · 00:09:34

To help us understand a little bit more. So like if you're doing that even pre investment, that's a lot of investment you're making in these companies even before they become portcos. So like, how does that work for you guys in terms of deal sourcing and making the economics work as a firm?

Taylor McKinley · 00:09:48

Yeah, it definitely is a lot of time. We all spend a lot of time on planes. The growth team does as well. Um, you know, obviously the first few meetings we do with the company, it'll just be the investment side. They're kind of getting to know them and getting to know the opportunity. But when we find things that we think are really good fits and we say, hey, you know, maybe there's not a chance to do an investment now, but in a year and two years, then we put forth that investment.

And so we'll spend time trying to get to know the entrepreneurs and find out what their pain points are. Not everyone has the same things. For some, it's, um, hey, I'm I'm doing everything, and I could really use a VP of sales, and we can go and have our talent team, which is a team of I think it's now five recruiters who has a very broad network.

We can say, hey, do you guys have any great VP of sales in this geography? And we can introduce the CEO to those things, to those people. Um, or it could be, hey, I'm all my sales right now are inbound, and I really think I need to build an outbound sales motion, and we'll bring in our sales team and say, okay, here's how you can do that.

And so it might start with just an hour long phone call. It might escalate to in-person visit. But, you know, I think when we find an entrepreneur or a company that we really like where we're happy and willing to kind of invest that that time ahead of time.

Shiv Narayanan · 00:10:59

Yeah. It's so interesting, right? Because in some ways, like these companies definitely need this type of help, especially founders, when you're building it from the ground up and you're bootstrapping and then you get access to all these resources, of course you're going to you're going to take, uh, take up a firm that's providing that.

Help us understand, how are you vetting these companies? And along the way, like, are you building this thesis of, like, here's here are the ways in which our growth team is going to step in, post close to create enterprise value here. And maybe you can start there. And I have a follow up for you, Chris. After that.

Taylor McKinley · 00:11:28

Yeah. It starts so so where we focus is we're typically looking at software companies that are between three and call it 15 million of ARR that are growing. Ideally north of 50% that are bootstrapped. So they got there on their own dime. Or maybe they've raised some money from friends and family. That's our typical profile.

A lot of it ends up being vertical SaaS, and a lot of that ends up being kind of core vertical ERP or system of record. And so that's where that's probably 90% plus of what we do. And we'll start talking to those companies when they are 200, 300,000 of ARR. So fairly early on, and we've gotten pretty good at recognizing those companies early on.

And so we'll spot them early and we'll track them. Again, we'll get to know them. They'll get to know us. We might invite them to a CEO summit. We might invite them to a product and tech summit. And we start that process of really getting to know them, and they get to know us. So it's we view these these relationships, that kind of long term, long term builds where we can really get to know them over the course of 2 or 3 years.

And then hopefully once they reach that, you know, five, 6 or 7 million of ARR and they say, hey, you know what? It's time for me to either take some chips off the table, or I want to put some more money on the balance sheet. Um, we're very top of mind, and we've kind of demonstrated that we can be helpful.

Shiv Narayanan · 00:12:45

And then on your side, Chris, like, as you're coming in earlier in this process, how are you deciding to staff up or support these companies? Like how in-depth is your team getting with these with these portcos? Yeah.

Chris Cassidy · 00:12:57

I'll mention one thing as a starting point, which kind of relates to that long term relationship build. And also the sort of collaboration between the investment team and the growth team is our team. And it's one of the benefits of having a team that is the size of our team. But our team will start doing calls with prospective partners, you know, more than a year out if if it warrants it.

I mean, some of it is a judgment call on the investment team's part to say, this company is really interesting. We want to get to know them better. They need help. We won't just be pitching the growth team, but will actually even start advising them. So we'll do a call with our, you know, our our pricing center of excellence leader.

We'll do a call advising them on pricing. Our payments. Person will do a call advising them on payments. It tends to be really specialized areas like that that the companies value because they don't really have the resources in those areas. And so our our team will get involved very early on, and it'll give us a little bit of a view and perspective on what we think of the company.

And then we bring that, you know, into the process as Mainsail, you know, deciding, you know, how to proceed and even through due diligence. And the other thing that does is puts us in a position to hit the ground running. So by the time we've closed a deal, we've gotten to know the company. They've gotten to know usually typically multiple members of our growth team.

We've worked closely with the investment team to put together a value creation plan, and that allows us to to hit the ground running. And then we've got a pretty standardized process for onboarding these companies. It has, you know, involves a value creation plan, which is obviously very unique to every company.

And in terms of staffing, the typical staffing at a company, once we've, you know, um, you know, done a deal, is there are investment team members, there's a growth lead that is assigned to that company that helps to facilitate the pull through of the rest of the growth team. There's a tech advisor who is, you know, assigned to that company and an exec chair.

So we have on our side a team across functional team or across, you know, group team that is working with that company from day one. And then we have a whole process on the growth team for, you know, evaluating where we spend our time and assessing, you know, our capacity relative to the needs of the business and the opportunities to move the needle on any given company.

Shiv Narayanan · 00:15:27

Yeah, I'm really curious how you manage that because there's like this, this trade off constant constantly because you have 40 people, which is a lot. But at the same time, with how many investments you make, you kind of have to always decide how heavily you want to go into a particular business. So how do you make those types of decisions where you might only have a couple of pricing experts or a few engineers that can support on the product side?

I'm curious, like, how are you making trade offs like that?

Chris Cassidy · 00:15:53

Well, it's a balancing act. I mean, that is one of the things we spend a lot of time talking about. We have a system internally where we look at the project allocation and the advisory calls by company every month, and we're constantly calibrating.

And it's a really a joint effort between the investment team and the growth team to decide how we're going to allocate those resources. Because you're right, it's a it's a large number of resources. But across, you know, 25 plus companies. It it can get spread out. So I think we are, you know, constantly trying to assess ROI on the engagement.

So there are certain types of projects that will come our way where we believe the company should be doing that themselves. And if they don't have the person on staff to do it themselves, then that puts a spotlight on they probably need to hire some people. So there's a scenario like that. There are other scenarios where we decide how deep to go.

So Brian, who heads up our pricing center of excellence, can run the, you know, entire, you know, pricing project down to the down to the nails in terms of all the details. Or he can advise at a higher level, depending on the needs of the business. I mean, it's a really good question that I think I only have an okay answer for.

I think it's something we're constantly working on. And and there's a little bit of tension there.

Shiv Narayanan · 00:17:19

Is this something that, like when you make an initial investment because you're in the first 100 days and there's more planning happening at that level. You're getting more involved and you're more tied in with the investment team at that stage as well. Or do you find it to be true that your involvement is high throughout the lifecycle of the of the portfolio company?

Chris Cassidy · 00:17:37

It ebbs and flows, but certainly like the, you know, the companies that are in that onboarding process, which we consider, you know, anywhere from six months to a year, will represent an outsized percentage of our total capacity. We are building the teams. We are putting infrastructure in place. We're doing things that, you know, in the long run.

Once we've built the team, the company is probably doing themselves. So it is heavily indexed to that first 6 to 12 months, but then it ebbs and flows. Right. When we do an acquisition, we may reengage. If we lose somebody in a leadership position, we may have to reengage in that particular functional area.

So it is it's not a straight line, but it's certainly spikes in the beginning and then, you know, continues to ebb and flow over the entire whole period.

Taylor McKinley · 00:18:29

I was just going to add to that. I think, you know, we've we've kind of purposely invested in, in building a very large growth team. And so one thing I often tell entrepreneurs is to kind of when they're comparing us to other folks is just to like, look at the size of the growth team relative to the number of portfolio companies.

We purposely designed it, that it's pretty rare that an entrepreneur says, hey, I need help with something. And we say, hey, you know, you got to wait a few weeks like that. That's very rare. We're kind of designed to be ready to go. Um, and that's just been very purposeful. So we like to think we kind of hire ahead of the need.

And we're, we're, we're ready to kind of stack projects as they come. But as Chris said, like in the first 18 months, there is kind of this natural, like you're onboarding people. There's often, um, you know, most of the time we invest in companies where there's two founders doing almost everything. And so there's a lot of like helping them build out the executive team and kind of building the, the, the building blocks.

Shiv Narayanan · 00:19:20

We'll get back to the show in just a moment. But before we do. One of the most common and important value creation levers that we hear about on the show, from private equity investors and our own PE partners, is go to market. Yet when these same PE partners bring us into their portfolio companies or new target investments that they're exploring, we find that the marketing function is quite immature under utilized and under optimized.

And so that's a huge opportunity that we see inside these companies. And if you have a portfolio company that you feel like it's scale a lot faster to drive more pipeline and revenue, or you're looking at a new investment where you feel like that could be core to your investment thesis. But we'd love to explore that with you and figure out how we can partner with you to drive more enterprise value creation on the marketing side, similar to the way that we've done with major PE firms like Updata, Hg, STG, and many more.

At this point, we've done hundreds of engagements across hundreds of industries and verticals, and we have a ton of benchmarks and frameworks that we bring to these engagements to help you drive as much enterprise value as quickly as possible. So if that sounds like something that you might be interested in, you can just email me directly at [email protected], or go to our website and schedule a demo, and we'd love to speak with you about it further.

And now, with that said, let's get back to the show.

Shiv Narayanan · 00:20:39

As you're building the investment thesis for these companies, Taylor, like, how. much of that plan or like the operational support that you expect is going to be given is being factored into that thesis, because you might identify 4 or 5 areas, whether it's M&A or cross-sell, upsell or pricing or whatever these levers are, you kind of have to make sure you have operational support for that.

So I'm just curious how you guys are collaborating together there.

Taylor McKinley · 00:21:01

Yeah, for sure. A lot of it is just around the growth opportunities that we're growth investors, and that's what we're focused most on. And so oftentimes when we're making an investment we're looking at what are the additional products that we can build or buy. What are the adjacent markets that we can enter into?

And the growth team can be incredibly impactful in helping in both of those. There's also just kind of this this comfort level we have that we know we can help build out the sales team. We can build out an outbound sales team. We know that we can be helpful in building out a proactive customer success team to help with retention.

Often we're investing in companies that have great retention anyways, but that's something that as you scale, it can be hard to maintain high gross revenue retention rates. And so we have high conviction our team can can help sustain that. So I'd say it's it's very much part of the process. But probably the biggest areas where it's really impacting is in the growth opportunities, kind of new products in adjacent markets.

Shiv Narayanan · 00:22:01

And then on the other side, as those opportunities are coming about, then you kind of almost have to make sure you have enough capacity to support those initiatives, right. So how plugged in are you staying in with all the investments?

Chris Cassidy · 00:22:13

Uh, very like I said, we have, um, we have a dedicated growth team member assigned to a company. But Taylor, you know, will slack or pick up the phone or call any of the Center of Excellence leaders when he needs support? And the big challenge is us staying, uh, coordinated internally so we know what the right hand is doing, what the left hand is doing so that we're not, you know, confusing or overwhelming our portfolio companies.

So we spend a lot of time making sure we're coordinated internally. But like Taylor said, there are very few situations where we can't meet the, you know, needs of the portfolio with the size of the team we have, and we have our growth team members sitting in the board meetings, you know, going on site with the companies.

I mean, it's just a really collaborative effort between, you know, our two teams.

Shiv Narayanan · 00:23:04

Can you guys give an example of where this collaboration has come together, just to bring it to life for the audience to see how it comes into practice?

Taylor McKinley · 00:23:11

Yeah, sure. Um, I can talk about. I'm on the board of a company called Instinct Science, which is an EMR for vet hospitals. We did the investment a little over four years ago, and I would say probably well, with quite with a lot of frequency, but with more in depth. Probably 9 to 12 months ago, our product teams spent a good amount of time working with Instinct's product team, kind of thinking through new product areas to grow.

And one of the areas that we talked about was AI scribing. And so that helped set off some M&A scoping that our associates kind of led, which ultimately led to us doing an investment in a company called ScribbleVet, which is an AI scribe for vet hospitals. And then during diligence, our AI labs team came and spent a day with that team to kind of poke and prod on the product and kind of get to know the team a little bit better, and they were really helpful and kind of turning to us and saying, hey, this is incredible tech and these are incredible engineers And this founder is fantastic.

And so, you know, they helped the executive team think through product strategy. And then they helped us kind of vet the company in diligence. And then we closed the investment in January of this year. And it's uh, it's been really exciting to see kind of the integration of that with our core EMR product.

And our AI labs team has been kind of front and center to that process.

Shiv Narayanan · 00:24:34

Yeah, that's a great transition because earlier you had mentioned, Chris, your AI labs team and the work that you're doing there. I'm curious, like, how are you approaching AI and like what is your philosophy there? Or how are you supporting these companies?

Chris Cassidy · 00:24:47

Yeah, I'll, I'll speak to our AI labs team for a minute or two. A little over a year and a half ago, we recognized that we there was a lot of inconsistency in terms of the execution of AI development, product innovation across the portfolio. And we had some companies leaning in, other companies trying to figure out how to get started or take the next step.

And it was clear our companies just needed more help. So we recruited a guy named Nick Olsen, who is a former Mainsail portfolio company co-founder and CTO, who was doing some pretty interesting things on the AI front at the time, and we believed he could help, you know, our product and engineering teams drive forward on their AI strategy.

We also recognized we needed to take the same approach. Mainsail takes in all of our other areas of our value creation. Which is this needed to be hands on? It couldn't be, Nick, you know, up in an ivory tower telling them what they should be doing. And so Nick hired a team of engineers. So Nick and those engineers make up AI labs with support from the rest of our tech advisors, which fluctuates, but is anywhere from 4 to 6 other former CTOs who are on our staff.

And then their mission is to provide guidance and training, but also actual building of products alongside the product and engineering teams at these companies. So I can give you an example of one of the ways that, you know, Nick is delivering, you know, their value. He created a program called Launch Labs earlier this year, where more than 70 engineers and product managers from across the portfolio spent a couple of weeks scoping each, scoping a product for their company that was either on their roadmap or they wanted to have on their roadmap.

And then those 70 individuals went on site to Austin and spent two weeks head down in a room with our AI labs team members, our tech advisors, and the teams came out of that session with 24 products. In some stage of production or beta, you know, some of them are live now. But what was important about that as well is it wasn't just the products that were created on site, it was the proliferation of the learnings and the knowledge that those individuals brought back to their organizations.

And we believe this has been a meaningful catalyst for acceleration of development of AI products across the portfolio. And then, of course, there are one on one engagements where Nick and AI labs are getting in and helping a company to build and launch a product. But again, in that process, kind of related to your other questions about how we scale this model.

They're not just building the products for them, they're training them on the tools. They're teaching them how to build them. They're helping them to understand how to set up their data and infrastructure to be most successful with AI products. So it's we're teaching them how to fish. And and so far it's been very successful.

Shiv Narayanan · 00:27:51

So as you're talking about that, my mind is immediately just going to you guys are making such a huge investment on the team inside your. firm that is higher than most firms actually build on the ops side. So can you just help us understand that? Like what's behind that? Like, I get the vision and the strategy, but like, economically, most firms don't do this because the economics don't work as well for them. So I'm just curious, like how you guys look at this at Mainsail and maybe Taylor, you want to take that one?

Taylor McKinley · 00:28:15

Yeah, sure. I mean, the reality is, you know, we're probably even better aligned with our entrepreneurs and that we're all driving results. Ultimately, because we've made this conscious decision that we want to invest in building this team, and it is very large.

But yeah it's been very purposeful. I mean, as Chris said, the founding members of Mainsail, Gavin and Jason, they had this vision from the very beginning.

And it was it was core to who we were from, you know, from from the start. And so along the way, we just continued to build out this team. It started with a little bit more of generalists, people that could cover. I mean, Chris was all of sales and marketing. I was all of product and tech. Now, each one of those groups, you know, there's probably 15 people in each one of those groups alone.

And so over the years, we've just gotten more and more specialized, but it's been driven by the questions and needs of our entrepreneurs. Right. I mean, over the last decade plus what it takes to scale a software company, it evolves, right? Like AI labs is the best example of how it has evolved. But those needs continue to change.

And so it's been fun for us because it's driven who we've been able to hire. You know, as Chris mentioned, a few years ago, we started getting more questions around pricing projects. We started realizing that was a really important lever. It's a pretty specialized hire to make. You know, not many firms do that.

We now have two people on our our pricing team. Um, so I would just say, like, we recognize that it's a really big part of who we are. And it's been a really big investment for Mainsail, but we kind of view it as like, this is core to being successful at our end of the market. If you're going to help a software company go from five to 50 to 100 million of ARR.

These are kind of a lot of the important building blocks to help those entrepreneurs and founders on that journey.

Chris Cassidy · 00:30:03

I also think part of the equation is the ROI on, you know, selling Mainsail to founders and making them, you know, helping them to understand that they're going to have all this support if they do a deal with Mainsail, that is part of the ROI equation, is getting more deals done because we have this team.

Shiv Narayanan · 00:30:21

Can you just talk about on the investing side? Taylor, how do you look at AI, especially with how it's going to impact these companies? Because there's an existential risk inside a lot of these businesses of whether they can be replaced or there's competition and and whether they'll be able to drive as much pipeline.

And, and how do you look at that in light of the fact that you now have the internal capabilities to actually help them navigate some of these challenging times?

Taylor McKinley · 00:30:46

Yeah, I mean, in general, we're we are looking at core systems of record kind of vertical ERPs, and we're big believers that those companies are in a wonderful position to be a beneficiary of AI. If they adopted aggressively you know, there are two. They're kind of two angles we see. AI can help them be more efficient.

That's great. They can have you know, they can code more with fewer engineers or with the same number engineers, their sales team. Everyone can be more efficient. The more exciting thing is all the AI products that you can build or buy. And so that's where we focus a lot of our energy. And as we look at new companies to invest in, we're kind of thinking with that mindset of, you know, is this company kind of number one or number two in their category?

And are they like the core system of record? And if they are, then we're really big believers. They're they're going to be in the best possible place to benefit from AI because they're going to be able to launch. You know, I'd say historically, we would always say they're going to be able to build or buy software companies, but now we're starting to think they also can build or buy services that they can cross-sell into their captive base.

So we love this concept of kind of owning a vertical market and not only owning the whole tech stack, but starting to own part of the services stack as well. So when we're looking at companies now, I just say like we're similarly looking for the same kind of companies, but now we're kind of thinking about all the additional products we can we can build and also services we can as well.

Shiv Narayanan · 00:32:08

And for you, Chris, like on the AI side, like where does that stack rank against all the other levers that are available to you and your team against pricing and go to market and overall product updates and, and things like that? Like, where does that rank in terms of what you're helping these companies with at the moment?

Chris Cassidy · 00:32:24

Yeah, I mean, at the moment it's it's at the top. But I'd also say it's completely integrated. So you talk about pricing. I mean, every one of our companies, our pricing center of excellence, is working with every one of our companies to ensure that the pricing model they're using is capturing, you know, is aligned with rather the value for customers as we launch new AI products.

As you know, usage takes a front seat to seat based pricing. So I don't I think it's hard to separate any of it, including, by the way, the strategy for all the same things Taylor was talking about in terms of the investment decision. We're spending a lot of cycles with our companies these days, making sure they're thinking about their strategy differently, because AI is opening up so many new doors to, you know, for the these companies to grow.

Taylor mentioned one of them, which is, you know, automation of some of the services, but obviously accelerating products, leveraging your, you know, proprietary data. There are, you know, more opportunities than ever. So I'm not going to say it was ever checkers, but it is certainly chess these days in terms of how we're approaching, you know, the our strategy for each company.

And I know and the one mistake we see people making is thinking that AI is a strategy. AI is powering, you know, the I think the, you know, better strategies these days. But I think people need to not be confused with thinking if I launch a bunch of agents, I'm going to win my market.

Shiv Narayanan · 00:33:55

Totally. Yeah, we see that as well. Like people trying to just replace our entire marketing function with AI and you can't really do that. But this integrated approach where AI is embedded into pricing and product and you go to market, that definitely is the right way to go. We're coming up on time here.

But just before we end things, I'm just curious, like any takeaways from both of you guys final thoughts in terms of other firms that are listening how they should go about having more of an integrated ops team with the investment side and maybe Taylor, we start with you.

Taylor McKinley · 00:34:22

Yeah. I mean, I think it starts with what are the the needs and pain points of the portfolio companies. Like that's where it has to start. We had an interesting moment, I think, in the Mainsail journey, as we were building out a growth team where we kind of said, hey, should we be leaning more towards the management consulting background or the software background?

And we kind of ultimately said, hey, we want more people who have software experience. If they have management consulting too, that's great. But we want people who have sat in that seat who have built out their various functions and still are really excited to help do it. And so I think it just starts with understanding the pain points of the companies and then starting to hire for those roles.

I think we're really just really big believers that you want these people in-house. I mean, a lot of our the vast, vast majority of our growth teams are W2 employees. They're dedicated to this. And I just think like, that's an incredibly, incredibly important thing to have at this stage of of investing.

Shiv Narayanan · 00:35:11

Totally. Chris?

Chris Cassidy · 00:35:11

I think as it relates to the collaboration between the teams and us not having silos, that is, I believe, you know, something that is a differentiator for Mainsail and something that's hard to recreate. And just to give some examples of things we do to reinforce that in our culture, there is no seating chart that clusters investment team members.

With the investment team members, we are completely integrated operations, finance, investing, team growth teams. They're all sitting amongst each other. There's no cluster of teams. We also, you know, funny enough, this year we have a couple of themes for the year and one of our themes this year. It's a little silly, but it was Shake and Bake, which is intended to sort of reinforce this idea that we're partnering, you know, within the firm with each other to achieve the goals of the firm.

We actually create a slack channel where almost daily it's at least several times a week. Someone is promoting one of these examples of the team working together. So I guess if I understood the question and answer the question, I think you really need to embed it in your culture. You can't just wake up one day and decide, hey, we're going to, you know, work together to, you know, on an ongoing basis.

You really have to put some thought into it.

Shiv Narayanan · 00:36:26

Totally. And honestly, everything that you guys have said has resonated so much, and I've seen other firms that are trying to build this out more, but I feel like you guys are way further along in your journey. So I want to thank you guys both for coming on and sharing this wisdom. I think a lot of private equity firms that are thinking about investing more in their ops teams or, or are already on that journey will learn a ton from this.

So I appreciate both you guys doing this.

Taylor McKinley · 00:36:47

Yeah, thanks for having us.

Chris Cassidy · 00:36:48

Thanks so much. Really appreciate it.

Shiv Narayanan · 00:36:51

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