Welcome to Tomo Bravo's behind the deal. I'm Seth Borrow, a managing partner here at Tomo Bravo, and I'm thrilled to welcome you back to this episode of behind the Deal with Sailpoint. The episode you're about to hear first aired in 2023. But because we have Sailpoint CEO and founder Mark McLean in the studio today, along with Matt Mills, president of worldwide Field operations, we thought we'd record some bonus content to take you further beyond the Sailpoint deal. We will be releasing the new content in this feed and on YouTube next week. But first, we want to get listeners up to speed by replaying our original behind the deal episode with Sailpoint. We hope you enjoy it.

I think if we had tried to conform Sailpoint at that early stage of its life to a more EBITDA heavy model, we wouldn't have had the outcome we had.

Mark. I think we should tell everybody what EBit does.

Earnings before income, taxes, depreciation, and amortization. Is that right, Seth?

It's pretty close, yes. Earnings before interest, tax interest.

I said income. Sorry.

Do you want to do it again, Mark?

No, actually, I'd rather be wrong and let them poke. Actually, you should poke fun at me. That would even be better.

I mean, you pretty much got it.

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Welcome to Toma Bravo's behind the deal. I'm Toma Bravo founder and managing partner, Orlando Bravo, and that was Mark McLean, co founder and CEO of Sellpoint, a leading provider of identity management for enterprises across the Fortune 105 hundred. In conversation with Seth Borrow, one of our managing partners at Toma Bravo. And on today's episode, you'll get to hear how Mark and Seth have forged a relationship which led to our first ever IPo as an investment firm to eventually acquiring Sailpoint again in 2022. For me, Sailpoint is a case study of when you really see eye to eye with the management team of the company you're going to invest in or acquire. And in the case of Sailpoint, seeing things in a similar way happened very quickly with Mark, the founder of Sailpoint, and his team. We met Sailpoint, and at the time we met him, we were actually rather late in the deal process. They were talking to some investment firms about doing either a minority investment or a majority recapitalization. And there were this unbelievably great identity management software company growing really quickly with an excellent culture, very well put together, just like they are now.

And I remember talking to Seth and saying, we have to do this deal. We have to figure out a way to come together with the company. So we had a meeting with Mark and his team. And in that meeting, we set it like it was. Our approach is to help these great innovators like you also become great businesses. And to do that, we really love to be involved in the operating dialog. We're very detailed oriented on execution, of doing things right in sales efficiency and sales investment, on product efficiency and product investment, of really running each area of the business best in class. And it was really interesting because you had other great investment firms pitching all the good stuff, growth and investments. And we were very real with Mark and the team. After our meeting, Mark and his co founder called us back and they wanted to learn more about what we were about. And they wanted our references, and they wanted to start talking to other CEO's that we had partnered with in the past. And it is such a good sign when you see leaders doing that, because think about it, you're going to partner with an investment firm for many years going forward.

You better make sure. And that that partner is exactly what you're looking for. And that there is not only a cultural fit, but there's a track record behind your value add and what you're discussing. I remember the deal started going well from that perspective, and I took a vacation to Europe for a week. I remember it was that summer of 2013, and when I was on vacation, Mark called me and he was talking to Seth, and he wanted more references and he wanted to learn more. And instead of me being on vacation, I was so fired up that I just kept talking to management and I said, wow, do we see things the same way? So at the end, we did have to compete as well on price, and we won both. I thought we won the management relationship because we were the right partner at the right time for the company. And management saw it that way. And we delivered as well the right value because we had enough conviction from them to be able then to deliver that value. So we had a great run with them as a private company. Then the company went public, and we had a great run together with them as a public company.

And after a while of them being a great public company, Mark, with this incredible relationship with Seth, thought about the next stage for them and what the next stage would take. And he thought that in order to accomplish the best as they could in their journey with employees and customers and their ecosystem, that the best step for them was to go private. And who better to do it with than his close partner, Seth? And we had worked together for so long that we were able to pull another great deal together with them. I'm going to turn it over to Mark and Seth now to tell you a bit more about how Sailpoint works, followed by their conversation behind the deal of Toma Bravo purchasing Sailpoint not once, but twice.

My name is Seth Borrow. I'm a managing partner at Tomo Bravo, and I have worked here for 17 and a quarter years.

My name is Mark McLean. I'm privileged to serve as CEO and one of the co founders of Sailpoint Technologies here in Austin, Texas. Sailpoint's a little over 17 year old company, which is actually mind boggling for me to say. If you had asked me at the beginning of sail point whether I thought I would be here 17 years later, the answer would have been an emphatic no way. Just wasn't expecting that journey. But our company's in a space called enterprise identity management. And to give ourselves credit, but not undue credit, I think we picked in a good, attractive market space to go into. There were some real needs that we understood at that time in the market. But the part I try to stay humble about is I don't think any of us foresaw how attractive this market would become over the next decade plus.

Identity management as an industry has been around for a long time. If you think about large organizations, every employee will have an identity. So you join a company, you get onboarded, your identity needs to be managed. It turns out a lot of breaches that take place at companies come on the back of employees who no longer work there, but their identities are still active. They have access to systems that they shouldn't.

One of the examples that was very jarring for the industry, I won't say it right, because it's a french bank, Societe general. It's this very large french bank. And a very famous story emerged where they lost $7 billion because of a rogue trader. Well, what the story ultimately ended up being was that guy that human had been in a part of the IT organization, had, over time, moved to being on the trading desk, but no one had ever cleaned up his access privileges that he had when he was in it. So as he got into trading and took bigger and bigger risks, he realized he was in a bad position. So he used his former IT access privileges to go in and delete records of transactions. He also stole some of the access privileges of some of his neighbors using the proverbial yellow sticky note on their computer so he could log in as them and do other transactions to cover his tracks. So when all this thing came out, it wasn't just that they had a trader who people didn't know what he was doing and had lost the bank a lot of money with positions.

He had actually gotten away with that for so long with his it access that he had never had revoked, which he should have had revoked, he could cover a whole lot of bad behavior. And interestingly enough, that story happened in about 2007, I think might have been 2008. We had launched the company effectively at the beginning of zero six. So we were just kind of coming out of stealth mode, as they say, just kind of unveiling our product value proposition to the market. And effectively, we used that story to say, if they had had our type of technology, this wouldn't have happened. By the way, interesting little sub note later on, they became a customer. We weren't there in time to fix that, but we hopefully have helped prevent that from ever happening again. So that story and our ability to articulate what had gone wrong and why a product like ours would have helped prevent that definitely kind of starts to raise the visibility of this problem.

We got really excited back in 2013 and 2014 about what they were doing in identity, which was an area of security that we hadn't invested in yet. And our security team had really done a deep dive into this whole area of identity being a really interesting, fast growing space within the overall security market, and identified sail point as a company that we would really want to buy if we ever could.

When people ask us about the clients we serve, one of the challenging things is when you're in security in general, a lot of your best clients aren't willing to tell people that you are their client or they are your client. And so what we usually say is, if you get a list of the Fortune 100 or the Fortune 500, if you were to pick about every fourth or fifth name, that's a pretty good representation of our customers.

So we stayed very close to it. We got to know marking Kevin very well. And the more we learned, the more excited, you know, we got not only about the company, but about the team and the culture.

In about 2013, we had gotten enough momentum and notoriety as a business that we had a couple of interested what they call strategics, big tech companies that were kind of interested in talking to us. And without naming who, let's just say we went way down the path in one of those time metaphors. It was 1158 on the clock, and we thought we were about to get something done, and it didn't happen. And so the board and the management team said, hey, okay, fine. That's not going to happen right now. Let's keep going. And we decided to go out and raise what was generally referred to as a growth equity round. Like, we're not interested in selling the business. We just want to grow the business and take a significant infusion of capital. So the banking firm that had helped us work on that deal that never got done said, hey, we could help you guys with that process. And we said, great. So they started putting together a pitch, talking to people, and they said, okay, we've got a short list of people we'd like you to talk to. That was maybe 20 firms. And then that narrowed quickly to about or six firms.

But what was surprising to us was that half of those firms, maybe two thirds, were private equity firms. And we were like, wait a minute. I didn't think this was where the private equity firms played. We were raising growth money. We were still a very high growth startup, north of 60% annually at that time, but barely making money, to be blunt. And so we were like, oh, we didn't think that fit the model. But anyways, we began to engage, and Thoma Bravo ended up being not only one of the finalists, but the winner of the deal, as it were. And so, unexpectedly, by the way, we thought rather than just bringing in a new significant investor, all of our old venture capital investors left. And Thoma Bravo was the sole owner of the business at that point in 2014.

And that was really, you know, step one of now what's become a really unique situation for us where we've bought a company twice. Here's my conversation with Mark McLean, co founder and CEO of Sailpoint.

Hey, Seth, you look marvelous. To quote Billy Crystal.

Sorry I'm late. I totally lost track of time.

Well, we just wanted you to say sorry to remind us of your canadian heritage. So I feel better now.

Throw words out there, and I'll put them all in canadian for you.

Hey, Seth, I was trying to think, when did we actually first meet in this process?

Wasn't it at a steakhouse in Austin that we had dinner?

I think it was Kevin, my co founder, and Cam, our CFO at the time. Yeah, I think that sounds right, Seth.

And I think my first impression was maybe being inside your head and kind of wondering what you were doing at the dinner with a bunch of guys in private equity.

I did give a little of that backdrop. It was surprising to us that private equity firms were interested in our company because we didn't think we were the kind of company that private equity firms would want to play with, because it didn't represent what we thought from our perspective.

What we thought was typical historically, and especially in tech, private equity was not buying companies that were considered innovators or high growth. So it was a departure from what you would see in a typical private equity investment at the time. It's become our business today. And sail point was, really, for us, the first investment that looked that way, and as a result of that, we took a risk in making the investment. It was a huge decision for us at the time, and the fact that it worked and worked so well really propelled us into a new realm of technology investing. So even today, you don't see the industry, for the most part, making investments in the sorts of innovative companies that we do. And it all started for us with Sailpoint.

That point was why it was surprising to us. PE as an industry wasn't known for coming into the innovation part of a lifecycle of a business.

Yeah. So I think I probably spent most of the dinner trying to be cool enough to be interesting to a super high growth, very exciting innovator in identity security. But that my impression was like, there was a little bit of, like, sort of feeling each other out. It was like the beginning of a boxing match. Little jabs, but nice jabs, nice jobs. But it felt like we were sort of there to prove ourselves a little bit that we could be a good partner to you and the team, given all the amazing things that you had done. And I remember there was the strategic deal that fell apart.

Yeah. In late May of 2013, as we were getting close to the end of a potential large strategic deal, our company had 90 or 100 people, and they brought over 100 people to Austin to do due diligence on the company, which, to put it mildly, was very distracting, caused us to have a hiccup in Q two. So that kind of blew up the deal. We went into a fundraising mode, and the banking firm that was helping us with the deal kind of went out to check the market. And, Seth, as you said, we actually just weren't expecting a PE firm to show up in the dialog. We're like, oh, just didn't expect that.

So at the time. Well, Chip and Andrew are both now partners, and they're my partners in our cybersecurity side of the business. We've worked together. I've worked with Chip since 2008 and Andrew since 2012. At the time, Andrew would have been brand new as an associate, and Chip would have been a vice president. And it was a really busy investment summer. There was all sorts of stuff going on that summer, and I remember, especially Andrew was really kept reminding us, don't forget about sail point. And I'm obviously very happy that he did well.

And I have another recollection of that first meeting. Seth, you're right. There was a bit of feeling each other out. But what we all talked about, you all went off and had your private conversation after dinner. Our private conversation after dinner was, wow, these guys really get security. Like, that was our big takeaway. We walked away going, okay, wasn't expecting to talk to a PE firm, but, man, these guys know the market. Like, they've done a lot of work. They really understand what's happening. And I think what really impressed us, I guess, to give him credit, it was kind of chip and Andrew at the time, had really dug in to understand that identity, while it was a pretty new space, had some different nuances to it. Hardly anyone understood that at that time. And they got that we were different than a couple of the other identity plays that were already getting some high visibility in the market. And I think we went, oh, these guys could be a really good partner. Cause they get it.

No, totally. And I remember the whole idea to invest and buy Sailpoint came out of that industry work that we did. So we knew that it was the business that we wanted to buy, which is pretty typical for us in our process, and that's why we were so well informed when we met the first time. So, despite the fact that that's a decade ago, our process has remained pretty consistent, and that's a really good testament to how we try to show up in these sorts of opportunities. But we had that dinner. We did our work. Everything checked out. We're super excited. And then for us, I remember the meeting that kind of sealed it as something we definitely wanted to do, was in the basement of the W hotel. I probably two months later, three months later, I don't remember the exact timeline. And Orlando and I were there. I think you were you, Kevin and Cam were there.

Cam and Kevin.

And that was the sort of handshake, let's make this thing work now. We still had to give the best price, which.

There was a bit of that, which.

You know, which is always the case, which we did. But that for us, I remember, sealed it as something that we weren't going to lose. That was an investment we absolutely wanted to make. And I just remember a lot of institutional inertia on our side after that meeting. So we were really fired up to get it done.

It was a competitive bidding process. There were other firms in there. And what was interesting is it felt to us that Toma Bravo was leaning back a little. They didn't seem as engaged as some of the others.

I think we were busy.

I think that's closer to the truth.

We had a ton. I remember that was, again, we had so much going on all at once. And maybe it was after that meeting we had at the w, maybe it was a couple of weeks before, but we just got to the point where we were like, look, we just can't. We have to do this. Like, I don't care how busy we are, I don't care how big a leap this feels, we've got to own this company and we have to partner with his team.

But we always described it as the hockey stick. Like, in the last couple of weeks of the process, TB came on incredibly strong. It was like all day, every day, talking to somebody from Toma Bravo, and, like, all of a sudden they were the lead runner. Clearly, they expressed really strong conviction in the business. And again, we already liked the team and knew they got the business. So it was. It was a very. I'd never been through that competitive bidding process before on this side, so it was. It was a learning process for us, too.

Remember the other discussion we had, Mark, that was really important for us is we did decide or agree that if things really did slow down, at some point we would change our view on what we were trying to do together. From a profitability perspective earlier, not only did that not happen, but accelerated the other way. So the growth in the business ended up being so much faster, I think, than anybody thought, because all of a sudden you started riding this incredible curve of opportunity. And I think one of the great things about the early days in the partnership is I think we were really helpful in working, especially in the go to market area, to make sure that that function scaled was predictable and was able to kind of go after that opportunity. So from my perspective, those first couple of years were just a really incredible partnership of both of our firms. And obviously you guys were doing all the work, but I feel like we were there sort of helping the company look forward a little bit in terms of what needed to get done to go after this massive opportunity that presented itself in a way that I think we weren't ready for and was ahead of anything that I think even you thought at the time.

Oh, yeah. No, I think at the time of the deal, none of us really saw an IPO as a looming likely outcome. Not that any of us were dead set against it at all. Just like that's probably not the path we're going to grow. And I think we always had a pretty strong conviction around growth. But I think, yeah, you're right, Seth. We had talked about, look, the old rule of math, right? If the growth doesn't stay as hot, then we'll need the profitability to come up. Right. And the growth stayed hot, so we didn't focus on profit. Now, what was great was over time, profit joined and it became a very good overall picture for the market. Yeah. And it just had an unexpectedly but very positive outcome. And I think there were some things about scaling that you guys understood that we didn't. I think we knew an awful lot about our space and the technology and the market, and there were some things about efficiency and scaling that you guys understood that were super important at various critical junctures, kind just reinforce the power of the partnership.

We also have seen so many, a lot of our business over time, and especially at that point, was companies like Sailpoint that had amazing product, grew like crazy, but didn't put the right other functions in place so that they got to a point of missing numbers, not being predictable, not scaling, not taking care of their customers the right way. So we also, I think, had some foresight and working with the team, which was always excellent, the talent in the company was always incredible, but working with the team to get some of that process in place so that when the company was going after these huge growth targets, it was able to do so in a way that didn't break the business.

Yeah, I think that, look, we did see the growth opportunity, whatever it was. Seth, I guess 2016, the bankers friends started talking to you all and us, sometimes jointly, sometimes independently, about whether this might be an IPO candidate. And we all came to the conclusion it was worth looking at and we were willing to do it. It hadn't been a goal, frankly, but we thought, well, it looks like it could be a great outcome. And we ran down that path and got the company out publicly in 2017, late 17. And then, you know, I guess Tome above hadn't done a lot of IP.

We had done at that point in software, we had done zero.

Zero. Right. I think way back in the, in the predecessor Tomo Cressy firm. There had been one or something like that. But at that point, I think we weren't even sure. Maybe you guys already knew, but we didn't like how this is going to play out now that we're public. And what happened was a pretty rapid decline of investment interest by Toma Bravo, frankly, for a good reason, because the stock was performing really well, and they were able to take some real good returns off the table. But it did escalate, I think, faster than both of us thought. How quickly? Tomo Bravo was no longer a part of our team.

Right. It took about a year, which is not you. Never. We certainly, because we owned an overwhelming majority of the business, it was not something that we expected, but the stock did so well, and there was sort of constant opportunity, actually, to provide liquidity to our investors, which we did. So I think within a year, about.

A year, you were out. I think we had all thought it might take a two to three year window. We knew there'd be a process of gradually capitalizing on the opportunity to capture the investment, but I don't think any of us saw that when we went public in late 17, that by basically the end of 18, really early 19, our friends at Toma Bravo no longer owned any of the company. So that happened quite rapidly. So there was a lot of adjustment quickly. Frankly, I was a little sad. I wasn't in a rush. For the Thoma Bravo team to disappear, that was kind of a sad thing, honestly. But it happened. So off we went. Ran off to be a good public company, and I always felt like our friends at Thoma Bravo were cheering us a bit from the sidelines. Hey, you guys keep going. Good job. And then what, Seth? I guess late 21.

Yeah.

A number of years after you guys were fully out. A good three and a half, almost four years, I think. We'd obviously seen each other at events and conferences, such things, and stayed in touch, and we reached out to have a quick conversation about some of what we're seeing in the market, because we almost viewed you guys like consultants, like, you're smart, you understand the industry. What do you see happening? And sort of just thought, hey, let's pick your brain and, you know, see what happens. And then I guess what happened next was sort of like, hey, what if we perhaps did something together again, which was not really what we expected to come out of that conversation.

We. I mean, we followed the company incredibly closely, and, you know, the business obviously performed really well. And, I mean, Mark, you are in a unique situation where you've taken a business to, our value was $7 billion. I think our initial. Right when we bought the business the first time, you obviously founded the company. I mean, it's just an unbelievable story. You know, it's also amazing that your team, a lot of your team has been there with you throughout the whole journey as well. So you've been an amazing leader and you've, you've been able to transition from founder, you know, running this, you know, ten person company to how many people do we have today? It's, I mean, it's unbelievable.

2500.

Yeah. And continue to innovate too, which is not easy to do. So, you know, one of the big impetus for the round two of our investment, and I hope you feel the same way about us at the end of this one as you did after the first one. I don't know if there'll be around three.

We're planning on it.

This innovation that's continued in the business has obviously pushed the company into a transition to cloud, which is something that we have a ton of experience with now it's happening all over software for companies that have been around for more than ten years. And we got really excited about what we saw with the new product, where we saw the market going. The market's becoming increasingly interesting. It's an area of increasing investment and sail points position innovation in the market in many ways looks like it did when we first made our initial investment, but now it's a cloud first company, and that transition isn't easy. Taking a step back from the public markets at the time that the company did, we think is a great decision to accelerate this move to cloud and come out the other side as both a high growth and high profit business. But a company that has essentially then become a full cloud hybrid business with incredible recurring revenue, great products, great cash flow, and that very well could be a public company again, which I think everyone has ambitions around if their performance is there. So it's a really neat story, and it goes to show you how companies like Sailpoint can definitely have many lives.

And in the middle of some of these steps, we think we can be a great partner to help the company get to its next phase. And this, for us, feels like that timeframe. That's where we re entered the scene and became really excited about this next opportunity.

Yeah, very much. I think we saw the opportunity for growth that was things we could do organically with our balance sheet and things that we might want to have a financial partner. And I think knowing what Tomo Bravo had done by then with so many other companies on cloud transformation and just an even broader footprint across the security landscape, I think, Seth, you probably know this stat, but I think if you were an independent security company with all your holdings, you'd be like the third or fourth or second or very near the top. I think we're at the top of.

The list now, but I'd have to. That might be pretty heavy in the world. We'll have to go. We'll have to go fact check that.

We'll have to go figure that out. But, yeah, I think that was a lot of the opportunity. And again, yeah, it has been a blessing and a pleasure to kind of be here for this whole crazy journey. Again, I said at the outset, if you'd asked me at the beginning if I'd be here 17 years later, I would have looked at you like you had a third head. But I think it's just partly been so fun. You said it. It's like every face is in some ways, felt like a different company. Right. There's just a whole different set of challenges. You know, zero to 50 million, say, or 50 to 250. And we kind of navigated the two ish to five ish in our public segment and with, with the friends at Toma. Bravo. I think we're hoping that gets into some kind of multi billion dollar number if we do our job right. And that is an exciting new phase of the journey that I've certainly never anticipated being on. But, you know, I have one secret to leadership success, and that is bring in smarter people than you that know what they're doing at all stages.

And when you do that, it seems to work out pretty well and just continue to be fortunate to have a great team around me to help us get this done. And we're very, very optimistic about the future of this market and our ability to capture the opportunity.

Well, Mark, thanks for talking with us today. It's been a lot of fun. Our partnership has been incredible over the years. We're so thrilled to be back together. And the really exciting thing is that I think this next phase is going to be maybe even more remarkable than the first based on what we're seeing in the early days. So we couldn't be more excited and happy. So thanks so much for taking time to do this. We really appreciate it.

It was a pleasure. Thanks for having me on.

Thanks for listening to my conversation with Mark McLean. If you want to learn more about the work that he and Sailpoint are doing to continually innovate on identity security at some of the world's largest companies, visit sailpoint. I'm Seth Borrow. Thanks again for listening.

Tomo Bravo's behind the deal is produced by Thoma Bravo in partnership with Pod People. Stay tuned for more stories behind the deal. I'm Orlando Bravo. Thanks for listening.

Certain statements about Tomo Bravo made by portfolio company executives are intended to illustrate Tomo Bravo's business relationship with such persons, rather than Tomo Bravo's capabilities or expertise with respect to investment advisory services. Portfolio company executives were not compensated in connection with their podcast participation, although they generally receive compensation and investment opportunities in connection with their portfolio company roles and in certain cases, are also owners of portfolio company securities and or investors in Toma Bravo funds. Such compensation and investments subject podcast participants to potential conflicts of interest.