IVCA Profile: 2015 Fellows Medal Recipient Lee M. Mitchell, Managing Partner at Thoma Bravo, LLC

November 25, 2015

There is only a week and a half until the 2015 IVCA Annual Awards Dinner – December 7th at the The Four Seasons Hotel – and the award recipients for the 14th year of the event have been announced. Included in those honors is The Fellows Medal, that “recognizes individuals for their outstanding contributions to the private equity profession and to the Illinois Venture Capital Association.” The recipient of that distinction is Lee M. Mitchell, Managing Partner at Thoma Bravo, LLC.

Not only is Lee Mitchell the Managing Partner at Thoma Bravo, he also participated in its formation in 1998. Prior to taking that position, he was a partner at Golder, Thoma, Cressey, Rauner Inc. in Chicago, President & CEO of The Field Corporation and Field Enterprises Inc. in Chicago, and a Partner at Sidley Austin LLP in Washington, DC.

Mr. Mitchell is a Board Member in representative investments at Porter & Chester Institute Inc., Local Media of America Inc., and Segall Bryant & Hamill, LLC. He had formerly served on the boards at Van Wagner Communications Inc., and American Amicable Holding Inc.

In his service to the IVCA, Mr. Mitchell is currently the IVCA-PAC Chairman, and has served as Board Chairman, and has held positions as Secretary and Vice-Chairman.

Mr. Mitchell’s other activities involve Northwestern University (Trustee, Chair and Investment Committee), Northwestern Memorial Hospital Corp (Trustee, Vice-Chair and Investment Committee, Member of the Private Equity industry Guidelines Group (PEIGG), and was a former chair at both The Chicago Stock Exchange and the Metropolitan Planning Council of Chicago.

Mr. Mitchell is a graduate of the Wesleyan University, and received his Juris Doctor at the University of Chicago Law School.

The IVCA continues its profiles on the awards dinner recipients, and interviewed Lee Mitchell about his varied career paths, investment philosophies and perspective.

IVCA: The Fellows Medal is recognition for your direct contributions to the IVCA and the Private Equity industry. How have the years of working with the association added to your professional and personal life?                                                      

Lee Mitchell: First, working with the IVCA has brought me a lot closer to the challenges our members face in operating their businesses successfully and in explaining the positive contribution venture and private equity make to our local economy. We are all running relatively small businesses with a variety of our own everyday operating and administrative challenges. Our businesses play an important role in the economy far beyond our size and number, but this role is not well or easily understood by others.

Second, it has given me an opportunity to meet and work with many exceptionally talented venture and private equity investors I might not otherwise have come in contact with. Although we are doing similar things, venture investors don’t often work with private equity investors, and private equity investors rarely work with each other on investments. So, the IVCA has brought me into closer contact with a broader group of peers than otherwise would be the case. I’ve benefited greatly from sharing experiences with them and their sometimes different perspectives on how we all can do things better.

Third, working with the IVCA has created an opportunity to interact with local government and legislative leadership. Although earlier in my career I spent many years in Washington, DC dealing with federal legislative and regulatory matters, I’d had less contact with Illinois government. One of the IVCA’s important roles is representing our interests to elected officials and legislators. Taking part in that process has given me a greater appreciation for how little venture and private equity investing is understood in “Springfield,” and yet how willing many elected officials and legislators are to listen and learn if we just make the effort. 

IVCA: Thoma Bravo has an investment strategy of "industry consolidation" that has evolved and been refined over more than 30 years. What is the simple definition of that strategy and how has it benefited your firm’s private equity investments when applied as consistently as your firm has done?

Mitchell: Our industry consolidation investment strategy and process was developed years ago by my partner, Carl Thoma, and his early partners. To us, it means investing at that stage in the business cycle when successful, rapidly growing companies in large, fragmented industries or industry sectors have begun to mature and their organic growth has slowed. In order to continue to achieve the kind of growth rate they want, they begin to consider opportunities to grow by acquiring similar businesses in their particular sector that offer revenue and cost synergies. As the transition is made from fast growth to growth by consolidation, there typically is an opportunity to make the business more efficient by reducing spending on things not needed as much when growth has slowed.

IVCA: So stepping into an investment situation like that is advantageous?

Mitchell: Yes, creating a more efficient cost structure should improve earnings and margins and allow this increased profitability to be invested in better products or services, expanded sales teams and added financial control capability. This stronger business can then be a platform from which to acquire businesses that can be integrated with the original business to create more growth and, hopefully, add equity value over time. For about the last 12 years, we have focused this strategy on enterprise, infrastructure and security software companies because we particularly like the large recurring revenue component of their business models.

IVCA: You've been part of a firm that was established by Stanley Golder over 30 years ago. In all the changes, consolidations and spin-offs, what characteristics are still present that can be traced back to the firm's roots?

Mitchell: Stan Golder was a skilled and successful investor, but his successes never came at someone else’s expense. I’ve never heard anyone say a harsh word about Stan Golder, which unfortunately is not something that can be said about all successful investors. As a pioneer in venture and private equity fund management, Stan realized how extraordinary it is that investors in a typical venture or private equity fund are being asked to entrust their money to you for 10 to 15 years without being able to get it back. He knew that this trust had to be deserved, and that personal integrity would always be the most important asset in this business.

IVCA: You began your career as an attorney and, as you noted, spent a number of years in Washington, DC. In your opinion, what is the role of regulation in the private equity industry?

Mitchell: In my view, the increased regulatory focus on private equity since the 2008 recession has resulted more from political opportunism than from dangers or excesses that needed to be addressed in the public interest. This is not a business characterized by fraud or deceit, or one in which high risk and high fee investments are touted to a naïve public. And even after years of great growth, private equity firms still are far from having the scale to create a systemic risk to the US financial system. The high profile of the founders of some of the largest firms in the industry in New York and Washington  – and the limited ability of the relatively small and politically inexperienced private equity industry to push back – created an easy target for politicians eager to portray themselves as protecting “Main Street” from “Wall Street,” without much interest in trying to distinguish between hedge funds or stock brokers or private equity managers.

Regardless of how we got here, we now have increasing amounts of taxpayer dollars being spent to regulate the details of the relationship between private equity fund managers and a generally very capable and sophisticated institutional investor community. The institutional investors I deal with typically are sophisticated investors with more than enough ability and resources to understand and monitor their private equity investments without taxpayer funded assistance. It would be better for that taxpayer money to be spent to benefit those much less able to take care of themselves.

IVCA: Is there any circumstance where regulation is necessary, in your opinion?

Mitchell: Of course, we all can benefit from regulation that prevents fraud and abuse of the vulnerable and identifies and eliminates bad actors from our industry. We don’t want a Madoff-like scam in our midst any more than the government does. But we need to understand that venture and private equity firms generally are successful because they are entrepreneurial – they are populated by people who are willing to take the investment risks, without which there are no investment returns. These are the returns that have made venture and private equity funds so valuable to struggling public pension funds and thoughtful endowments and foundations.

Unnecessarily intrusive or misguided regulation – borne not from identified problems or the inability of citizens to protect themselves, but rather from political posturing – means more time and resources are taken from investing, and spent instead on mandated processes and procedures too often of minimal utility to anyone. This can only reduce, not enhance, the value of the business for us and our investors.

IVCA: You had at stint as CEO of the Field Corporation, and their media holdings. In your experience, and since the information and media industry has changed so rapidly, how do you think the cyber and digital world continue to change how we digest information?

Mitchell: It certainly has changed dramatically. It wasn’t too long ago that all our information was filtered through the editorial process of newspapers, magazines and a relatively few broadcasters. Most information was far from “real time” – newspapers delivered news and information once or twice a day; magazines usually weekly or monthly; TV stations at a few set times during the day; and radio stations maybe as frequently as hourly. Today, most of the editorial filters are gone or have been marginalized by an unmanageable torrent of global information that comes at us in “real time,” 24/7/365. We are left to do our own filtering, which most of us struggle with constantly. While the public has much more information, it often seems to understand much less. This is having a profound and not yet fully understood impact on governance, business, politics, law enforcement, education and other aspects of our lives.

I’m hopeful that we’ll see the development of new filtering mechanisms that will help us take the flood of immediate information and efficiently extract from it what is most important – to both our individual interests and our shared national interests – with some assurance that what we’re getting is coming from the most accurate, trustworthy sources. There are a number of businesses trying to do this now, but they are still looking for a financial model that will work in this new environment.

IVCA: In your rich variety of occupations and experiences, within so many different types of investments and companies, how much of it was part of a career plan and how much has happened because of your evolution connected to those opportunities?

Mitchell: It certainly wasn’t a career plan. I’ve been a corporate lawyer in Chicago, a regulatory lawyer in Washington, DC, and a law firm entrepreneur in Asia. I ran a media holding company for the Marshall Field interests, and most recently I’ve been in the private equity business. I don’t know anyone who would have or could have planned that.  I would say it was a serendipitous series of opportunities, but I can see how someone might say I just couldn’t find anything I was good at.

IVCA: You sit or have sat on several boards involving Northwestern University, the Northwestern Memorial Hospital Corp and a number of PE industry/economic development groups. How important are these outside contributions to your quality and purpose of your life?

Mitchell: I’ve always felt the need to lend whatever abilities I have to those grappling with issues that impact my community. I have tried to spend as much of my “personal” time as I can with civic and non-profit organizations that seem to feel my background and experience can help them address what I think are important challenges. Sometimes, non-profit organizations see their board members and volunteers principally as fundraising sources, and there’s nothing wrong with that. But money is to some extent a commodity that can be gotten from many other – and wealthier – sources.

I look for organizations where my participation might help make better decisions and achieve important goals. Where that has been the case, it has been very rewarding experience. I have been very pleased to see in recent years growing numbers of venture and private equity investors using their skills and experience to help local civic and non-profit organizations. That’s good for our communities and good for our industry.

IVCA: What are the most important specific issues that the IVCA must address or keep addressing in 2016, and what are the implications of those issues for the PE and VC industries?

Mitchell: I think we need to work harder to make sure that our governmental and legislative leadership understand what we do, how we do it and how important we are to our local, state and national economies, and to this capitalist system that we’re all dependent upon. We are capital providers, and capital is what makes the system work. If we do our job – in the way we all intend to do our jobs – we create new companies, make weak companies stronger, make small companies bigger, create the conditions for better products or services, and provide more and better jobs for many others. We don’t need to be celebrated for this, but we do need to be better understood or risk being treated as a problem to be solved rather than as an important part of the solution. The IVCA is addressing this need to better inform government and legislative leadership. It’s important that our membership support this effort.

The 2015 IVCA Awards Dinner, presented by Kirkland and Ellis LLP, will take place on December 7th, 2015, at The Four Seasons, 120 E. Delaware Street, Chicago. Individual tickets are still available, contact Kathy Pyne for information.