Mandera – The long-term value in technology

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A recent piece from Mandera Technology Partners

Madera Technology Partners

Madera is a technology focused investment firm. The hedge fund invest with a long-term vision, leveraging our domain expertise and proprietary data science tools. The fund implements its strategy across asset classes (long/short equity, private equity, venture capital, debt).

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-         Kris Drankiewicz founded Madera. Previously ran a technology fund at Highbridge Capital Management, was an Equity Research Analyst at Goldman Sachs, and founded a technology and Internet consulting firm.

University of Wisconsin, Bachelor of Business Administration with Honors. Double major in Information Systems Analysis and Design, and Accounting. Additional focus in Computer Science and Operations Information Management.

-          His co-founder Geoff Koide was previously a Principal at Andor Capital Management, Analyst at Balyasny Asset Management, Equity Research Analyst at Goldman Sachs, and TMT Banking Analyst at Goldman Sachs.

University of California, San Diego, Bachelor of Science. Double major in Computer Science and Management Science

The crux of it is see tremendous long-term value in technology as we enter a paradigm shift. We think this is an extremely compelling opportunity for long-term investors, on both the long and short side. The stocks are just mispriced by the public market.

Full piece below

Also see Q1 hedge fund letters

We are in the early stages of a paradigm shift that is driving structural change spanning both industries and asset classes. This shift will benefit companies that power the disruption and hurt companies whose business models are displaced. While our conviction in the vision has only grown with the aid of our engineering backgrounds and technology diligence toolkit, public market investors often struggle with technology stocks because the products are intangible and often abstract. The risk of obsolescence is real—some of these investment grade rated assets will no longer exist. Investors need to be picky.

The dip in technology growth stocks last November following the election was an incredible buying opportunity. Many of the sectors that initially benefited from the Trump Bump have since fizzled out whereas tech stocks have outperformed. That is because fundamental change is driving technology, not hype. While it is often difficult for public market investors to have the same appreciation for how compelling the long-term opportunity is, private market investors in the know are anything but timid here. In fact, more than $137 billion is about to be deployed.

Private equity firms have recently raised an unprecedented amount of capital, much of which is earmarked to invest in technology. Investors looking to optimize the past will likely invest in semiconductor businesses that can be relevered and scaled for efficiency. Investors looking to invest in the future will likely invest in software and the Cloud. We are staring at the mother-of-all-buyout fund environments.

“We saw a big bang in PCs. We saw a big bang in the Internet. I believe the next big bang is going to be even bigger.” – Masayoshi Son, SoftBank Chairman/CEO/Founder

SoftBank, in advancing its 300-year mission, recently closed the first round of its $100 billion Vision Fund. Investors that understand the vision that technology is driving massive change include Deputy Crown Prince Mohammed bin Salman Al Saud of the Kingdom of Saudi Arabia, Apple, and Qualcomm. Francisco Partners is reportedly raising $3 billion for its fifth buyout fund. Thoma Bravo raised $7.6 billion for its seventh buyout fund. Vista Equity Partners raised $11 billion for its sixth buyout fund. Silver Lake raised $15 billion for its fifth buyout fund.

Another slew of recently raised generalist funds include technology as part of their focus: KKR raised $13.9 billion, Advent raised $13 billion, Apax raised $9 billion, Permira raised $8.2 billion, Cinven raised $7.6 billion, Platinum Equity raised $6.5 billion, Genstar raised $4 billion, Hg Capital raised $3.7 billion, Carlyle raised $3.6 billion, and Vertias raised $3.6 billion. This is hardly a comprehensive list. There is a lot of capital looking for good homes.

Our conviction continues to build in our thesis that we are in the early phases of technology revolution. This is causing tremendous disruption across industries.

Some very smart people have said “there is too much capital now so bringing in more capital doesn’t make any sense.” As investors deep in the weeds (or circuit boards) of technology, we respectfully disagree. It is about finding the right assets. Many of our core positions over the last few years, even as public companies, have provided very good returns for shareholders. This opportunity largely exists because these companies are misunderstood by the generalist market. The companies are enabling the future and garnering an increasing share of the value created. This allows for sustained revenue growth in excess of 20% annually. Since IPO, Proofpoint (cyber security software) has been a 6.5X return for public investors, Guidewire (Cloud insurance software) 4.9X, Splunk (big data analytics software) 3.9X, Workday (Cloud enterprise software) 3.6X, InterXion (European Cloud datacenter real estate) 3.5X, CyrusOne (US Cloud datacenter real estate) 3.0X. We continue to see tremendous long-term value. If you give us $100 million or $100 billion with the task of finding value as defined by 1) growth, 2) profitability, 3) differentiated intellectual property, and 4) moat, we can give you a list of very compelling names. We have had companies as recently as a month ago trading at 2X sales—and that is recurring revenue with a 50% margin profile. Any one of these, and likely all of these, will fit nicely in the portfolios of the aforementioned $137 billion pool of technology dedicated capital.

A natural extension of our internal work is the friendly advisory work we do with corporate management teams and other industry players. In a symbiotic relationship, we can be helpful in sharing our ten year strategic views on technology, and this facilitates the monetization of our theses and furthers the mission of our portfolio companies.

While the public market can often find it difficult to value technology, we are extremely confident that investors somewhere—be it Japan, Saudi Arabia, Seattle, or Silicon Valley—will eventually recognize the opportunity and help us create and unlock that value. We tend to be early. But with the stars aligning in this technology disruption road map, we are happy to be.

Thank you and please reach out with any questions,



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