Dipanjan Deb, CEO of top-performing PE firm Francisco Partners, on

(Click here to subscribe to the new Delivering Alpha newsletter.)

Private equity is one of the few asset classes that’s been able to outperform even public equities during the bull market.

And the sector is reaping the benefits of that outperformance with 529 firms in the space raising an aggregate equity volume of $1.4 trillion over a 10-year period, according to the 2020 annual HEC-Dow Jones Private Equity Performance Ranking.

Dipanjan ‘DJ’ Deb is the co-founder and CEO of Francisco Partners, the top performing individual firm in that annual ranking. Deb sat down in an interview for the Delivering Alpha newsletter and revealed what keeps him up at night, despite the firm’s outperformance. The CEO also reviewed where the firm sees the most opportunity.

 (The below has been edited for length and clarity.)

Leslie Picker: I know you’re not able to discuss performance specifically, but what do you think was responsible for this outperformance? What’s the secret sauce here? 

DJ Deb: Of course, we’ve all benefited from a buoyant market and the tech markets where we spend a preponderance of our time. But I’d say we probably have done three things that hopefully has helped us differentiate us in the past and will continue to do so in the future. One is a focus within technology of sub-sectors. So we have 10 different vertical markets we pursue, whether it’s consumer internet, or healthcare IT, or network security, or cybersecurity, or FinTech, or education technology. So we have partners who specialize in each of those areas. And we believe that sub-specialization is the key to success. 

Second is we have an operating team of 35 people going to almost 50 to 60. These are people we can try to help with each company, both in terms of optimizing a company’s operations, but also getting best performance cost portfolio. And third is our culture, which is kind of a relentless focus on perfection. Of course, you never achieve that, but every day we wake up and say, “What are the 10 things we’re doing wrong?” We just had our annual meeting a couple weeks ago and the first slide we put up was, “Here’s the year-in-review.” The second slide was “Here’s the 10 things we’re doing wrong,” and I think you kind of need that focus to stay ahead. 

Picker: What do you think you are doing wrong? What is it that you need to improve on? 

Deb: As I reflect on the last decade, probably the biggest mistakes we’ve made is all the deals we didn’t do it. So it’s almost an anti-portfolio as it were. So we never thought that interest rates would go down and the stock market would come up the way it did. We also never thought leveraged markets would reach the levels they have today. I would say we were wrong in terms of software re-rating, software companies that used to trade at 8x or 10x EBITDA trade at 25x to 30x EBITDA. So we missed out on all those. 

Today I think one of the great things, as I said, is our focus on specialization. I think sometimes what that leads to is people…