The crypto industry is not as ethical as private equity, says buyout billionaire

Orlando Bravo, the billionaire co-founder of Thoma Bravo and bitcoin enthusiast, has said he was disappointed to find that ethical standards in parts of the crypto industry are not as high as in private equity.

Bravo, whose buyout group invested about $150 million in Sam Bankman-Fried’s cryptocurrency exchange FTX last year and has stakes in four other businesses in the sector, said in an interview with the Financial Times that his firm is halting investments in other crypto companies.

The private equity chief said he was happy with the deals Thoma Bravo had made so far, but he had come across problems in the wider industry.

“I’ve gotten a little more familiar with that world, and some of the business practices don’t rise to the ethical level that we’re all used to in private equity with your investors and your clients and your community, and that’s been a little disappointing,” he said.

Bravo, who has said he personally owns bitcoin, criticized the crypto market for what he called a “disturbing” lack of transparency. But he stressed he remained optimistic about bitcoin, saying the industry was “just young” and ethical issues would “be fixed over time.”

Miami-based Bravo’s profile has soared as his private equity firm has grown from a niche player to a $122 billion behemoth in recent years, plowing tens of billions of dollars of investors’ cash into leveraged buyouts of enterprise software companies just as valuations rose. The companies include UK-based Sophos and Stamps.com.

He has been a vocal proponent of bitcoin, tweeting about his bullishness and speaking at a bitcoin conference in Miami. In January, he wrote on Twitter that the cryptocurrency “stands tall as the ultimate store of value.”

This year, the price of bitcoin has fallen 50 percent and the crypto industry has been rocked by a series of crises. TerraUSD, a token designed to track the dollar, has collapsed, crypto lending platform Celsius has gone bankrupt and stablecoin provider Tether has faced scrutiny over the nature of its reserves.

In addition to FTX, Thoma Bravo has taken minority stakes in crypto companies Anchorage Digital, FalconX, Figment and TRM Labs, using a growth fund it raised last year. The fund has $1.5 billion to distribute in total, according to figures from PitchBook.

Asked if he would do more crypto deals in the current climate, he said: “We’re doing more of what’s been very, very successful, and if something isn’t successful yet, we’re not rushing to do 10 other things . . . We are very happy with what we have and we want to see it grow and be successful before we can do much more.”

However, he said the firm would “certainly look at” putting more money into FTX if it held another round of funding. The Bahamas-based crypto company was going to be “a big winner”, he said, describing 30-year-old Bankman-Fried as “one of the best entrepreneurs” he had met.

Bravo’s comments came as he and other dealmakers from around the world gathered for IPEM’s private equity conference in Cannes, and as the economic conditions that fueled a decade-long boom in the industry are turning into reverse.

Thoma Bravo considered raising equity capital for Elon Musk’s bid to buy Twitter earlier this year, which would have been a departure from the model for buying enterprise software companies. “It looked like an enterprise software agreement in terms of all the metrics,” Bravo said.

Twitter relies on advertising for much of its revenue, unlike many enterprise software companies that have steady, more sticky revenue from business customers who pay to use their products. Asked if the two were really comparable, he said: “You have a very, very good point . . . you have to be quite creative if you want to do the newer things in software.

“Can you see other companies that [having] recurring revenue streams by looking at them a little differently? Sometimes you can, sometimes you can’t.”

Bravo, whose firm rushed into the booming market for special purpose acquisition companies, or Spacs, said the model should be made more like private equity. Spacs have been criticized for enriching the so-called “sponsors” who put up the cash shells, even though the target company loses value after going public.

Thoma Bravo’s Spac merged with Israeli software company IronSource last year. IronSource’s shares have fallen from a peak above $13 to $3.56.

“The market was on fire and we took a shot,” he said. “There just needs to be better alignment, and if people could just copy the private equity model into a Spac, that would be much better. . . Let the Spac sponsor only make money if the stock goes up.”

He said software investment was “the perfect place to deal with inflation, no question” because with a $100,000 software product, a company “can lay off 50 people or do a lot more with the workforce you have”.

Earlier at the conference, Mikkel Svenstrup, chief investment officer at Denmark’s largest pension fund ATP, had compared private equity to a pyramid scheme, saying firms were selling too many companies either to other buyout groups or to their own funds. Bravo disagreed with the comments.

“We’ve sold so many companies to private equity and they’ve done so well with them,” Bravo said. “They can have a thousand ideas that you don’t have in your five years of ownership, and they crush it, and good for them.”

“People don’t say . . . that the public markets are a pyramid scheme,” he added. “Fidelity buys from Capital Group like it buys from a hedge fund . . . you’re just looking to make the best trade.”

Additional reporting by Scott Chipolina