After many years of talk, we’re now on our way. We are building the Berkshire Hathaway of Software.

Software? Why not just copy WEB? After years of study, I have yet to discover a system to copy WEB successfully. In fact, over time, I have realized that some of his favorite patterns are becoming less applicable today. Take for example investing in brands. One of the great lessons from WEB is to pay up for durable brands that can maintain their margin and not be commoditized. He’d often challenge his audience to find a business that has maintained its margins for 25 years, almost always the answer was a brand (or a regulated moat).

But ask yourself, is a brand today worth as much as yesterday?

We as consumers and small businesses are far more comfortable exploring beyond the big brands that we grew up on. Have you bought something that showed up in your Instagram feed recently…trust me if you haven’t, your kids have. Have you subscribed to a product online like pet food that shows up at your door monthly instead of getting in your car to drive to PetSmart and buying the brand you grew up using?

Brands used to signal something about who we were and our aspirations but now our social profiles (Instagram, FB, Twitter etc) brand who we are and want to be. We validate the quality of products not by the logo but by the 1,000s of reviews on Amazon.

I’m not arguing that Berkshire is at risk or that Mr. Buffett is no longer great, but rather suggesting that the next Berkshire will not be built the same way that Buffett and Munger did it.

“When Berkshire came up, we had an easier world than you people are facing this point forward, and I don’t think you’re going to get the kind of results we got by just doing what we did. That’s not to say what we did and the attitudes that we had are obsolete or won’t be useful, it’s just that their prospects are worse. There’s a rule of fishing that’s a very good rule. The first rule of fishing is “fish where the fish are”, and the second rule of fishing is “don’t forget rule number one.” And in life it’s the same thing” — Munger, 2018

So, tell me, why the Berkshire Hathaway of just Software? Because with all the disruption in today’s world, the changing nature of moats (networks vs high fixed costs, social proof vs brands, etc.), we have found software to be the ONLY business model we think a 30-year-old Warren Buffett would invest in. When you dig beneath the surface, these businesses have everything on Buffett’s wish list.

Wait…but WEB hates technology? Buffett doesn’t like technology because it changes fast, making it hard to predict. That’s not the software we’re talking about. The software we focus on, is the type of mission critical service that acts as the backbone of a business; where there is no benefit to switching and the product delivers far more value than it costs.

It is not the buzzword stuff (Crypto! Artificial Intelligence! Autonomous cars!), but rather a core part of your day to day business life.

Take for example the software used to run a dental practice. It is often integrated into the dentists’ scheduling program, payroll program, billing software and 10 other systems. Once installed the chance of that product being removed is very low (~2% to be exact) because changing products does not offer the dentist any incremental benefit and the switching costs are extremely high. The beauty here is that so long as the software continues to get better, customers won’t leave, allowing the founder to have 98% of last year’s revenue come in on day 1 next year …before he/she has spent a dollar on sales and marketing.

But that’s just the beginning …If you do a great job delivering value to customers, you can even raise prices a little bit each year — WEB often says the definition of a great business is one that can raise price. So in summary, we are talking about a business that can keep its customers for decades, maintain high margins, can potentially raise prices AND find places to reinvest >>> That’s a Berkshire Business.

“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.” — Buffett, 2011

Prove to me that software is the best business? Data?

We’ve posted HERE why we think software is the perfect Berkshire business.

If other people have figured this out, what’s left to do?

After studying investors in the software space, we realized that almost everyone is focused on larger companies, within sexier parts of software and they uniformly have very short time horizons. Most investors make decisions that maximize value in the short run, not for the decades that follow. They are not bad people, it is just how the incentives are structured. Private equity is scouring the earth to find the next business to buy, add debt to, cut cost and flip. We call this renting, and it’s not in our DNA. That strategy looks to extract value from the business…we want to add value.

So what is the action plan?

We’re going to find smaller niche software businesses, that have developed a product that customers depend on and work with the founders to help them grow and eventually transition. We spend a lot of time understanding the history of every company’s journey so that we can show great respect to the legacy and people who helped get the business to where it is today. In our book, success in business is survival and we never lose sight of that fact.

Our edge is finding these types of businesses and founders, where the product and team are just a part of DNA of the founder. We then commit capital, never look to sell, and spend countless hours working with the management team to help them tackle their hardest issues (sales growth, hiring, efficiency etc).

We believe that our patience (no time horizons), focus on reinvesting for the future (not maximizing short-term results) and ultra-focus on software (no distractions), provide a world of differentiation from the alternatives.

So why you?

We’ve lived it. I started a financial software business when I was 26 years old. We built an amazing team, scaled to serve some of the largest financial institutions in the world (even governments!) and became the dominant player in our small corner of the world. I know very deeply the challenge of landing your early customers, the loyalty to early employees, the struggle to keep everyone happy and the importance of building & maintaining a great culture.

My company also took private equity money. I saw the advantage of big pockets and experience, but also the challenges around short term focus and constantly chasing an exit. I felt the pain of making changes that my gut knew were wrong and learned what it was like to say goodbye to an entity I gave my blood, sweat and tears to.

That is why we created Tera Holdings; to be stewards for the next generation, not renters of a business to make a return. Our belief is that the keys to this success will lie in the scar tissue created from years of operating — not in the 160th row of an excel spreadsheet.

How will you help?

After having spent a year getting on 60 plane rides and meeting 100+ software founders, I have come to realize that Tera adds value in a few major ways to software founders:

• A Strong Home — We have immense respect for the heritage and legacy of every business. We understand the personal dynamics, unique cultures and emotions that go into a transition. Our goal is to be the home that creates a smooth transition and sets a path for multi-decade growth.
• Sales! Every company I have met in my life wants more sales. In fact, what we’ve found to be most valuable in our conversations is our sales playbooks. We have spent so much time operating and investing in software, that we know the levers to scale a sales force, build best in class lead generation, fine tune commission structures and most importantly: bring a culture of process + data to sales. Sales is NOT easy, and we pride ourselves in helping founders grow their businesses with tried and true playbooks.
• Simplicity — We are easy to work with. Our goal is to be simple and straightforward. The term sheets come in English, not in legalese. We move quickly. We share our analysis as we learn about the business, this is valuable for founders even if they decide not to work with us.
• Respect — We have been privileged to learn from some incredible minds/mentors over our careers. This was a function of luck not skill. We believe that respect is earned via experience, not bank accounts.

At our core, we believe our intense focus (software), long term commitment (permanent home) and operating focus (scar tissue) are true differentiators in a world flooded with people chasing a quick buck.

www.teraholdings.co

1. The Demand for Software is very strong and stable — Spend on software has grown at ~9% for about a decade. Looking forward Gartner estimates show that the Software category is expected to grow 8–11% versus the U.S. economy at 2–3% and broader technology spending at 3–4%. Software is a GOOD neighborhood to live in.

2. Signals from the Stock Market: “In the short term the market is a popularity contest; in the long term it is a weighing machine.” — Warren Buffett. Over many years, the market reflects the true substance of a business — here you can see that over the last 15 years, a broad basket of software companies has created meaningfully more value than a broad basket of businesses.

3. The Compounders: Now what if we pulled out the software companies that constantly buy other great software businesses the results are spectacular — FIVE times better than the S&P 500.

4. The best of the best: What does a GREAT software business look like? Constellation software is Canadian holding company that only buys niche small software applications. They acquire boring, sticky software businesses and reinvest the cash those businesses generate into the next acquisition. They do NOT get involved in the day to day operations. 5 amazing facts about Constellation:

• Constellation turned 25M into $15Bn — without raising any more money and using ZERO debt. A $100,000 investment at the beginning would be worth $56 Million today!
• The average customer across all the portfolio of companies uses the software for 20+ years
• The CEO travels in economy — he is incredibly successful + 6’5” and 280 lbs. The tone is set from the top
• Constellation acquires 30 to 40 companies per year
• ROIC over 10+ years has been 30%

5. Six of the top 10 Private Equity Firms have a heavy focus on Software. Coincidence? Probably not.

6. Well Run Software Companies are Extremely Profitable…. In fact, software is one of the Most profitable industries in the world. Here are average EBITDA Margins by industry + examples.

Every day I get asked by more family and friends if they should invest in crypto currencies. It’s getting to the point where I feel compelled to share the other side of the story given how much blind faith I see being trusted in FOMO.

1. Where’s the tech? — we are 8 or 9 years in this journey and there is still not even 1 enterprise or consumer application that we engage with regularly that leverages the blockchain. Given its been almost a decade since the start and the speed at which you can start enterprise and consumer applications has grown tremendously, it’s surprising that not more is built. I’m pretty sure 8 or 9 years after the launch of the public ISPs, we had numerous consumer and enterprise applications used or could imagine using. While it’s easy to say that this is the internet in 1990, there are millions of non-tech people who know about it, believe in it and yet nothing has materialized yet. I have people tell me that the blockchain will replace every passive industry, but I think we forget that an inefficient process or industry can be dis-intermediate with the EXACT same automation technology we already have. Because something is inefficient doesn't mean the blockchain is the right solution. So yes SWIFT sucks, real estate titling is slow and insurance claims are sloppy, that doesn’t mean the blockchain wins.
2. The currency angle is dead — early on we heard the use case for bitcoin would be remittance and currency. I think that argument has died. It’s pretty much well understood that NO country wants a parallel currency they can’t control. Gold is a great analog. Gold already has 5,000 years of history where every culture, religion and society ascribes value to it (all attributes bitcoin would love to have). Yet almost no countries treats it like currency. Governments exert significant control by controlling the fiat we all use (taxes, printing, shrinking etc). That is not something that they will let go of. Moreover, given the cross border nature of currency, it requires massive cooperation among governments, something I wouldn't bet on.
3. Satoshi must be in a perpetual smh mode— it’s incredibly ironic and sad that the largest and most well funded startup in the space is Coinbase — the crypto equivalent of a bank (#loveyouguysthough)! The Companies that help you hoard currency and not use it are the ones valued the highest in this economy. This is EXACTLY what Satoshi didn’t want. We just recreated the financial system all over again. The people getting rich now are the same Wall Street traders, market makers and funds that dominate our securities markets…and the same systems that Satoshi so badly wanted to dis-intermediate. The world’s financial system is not global and keeps out literally billions of people (for credit or other reasons)…every single person can own crypto, yet it’s now being profited by the same type of institutions (different skin, same function) it was meant to challenge. The point of btc was not to not make people rich, it was to change the system.
4. Markets don’t go up vertically / Making Money isnt Easy— this is just fact. When your facebook feed is filled with your friends not in the tech world talking about trading crypto currencies, you’re probably nearing the point of euphoria.

5. Fake News — I find that the industry suffers from fake news on 2 accounts

a. Press Releases do not = revenue — Every day you see the currencies jump in price because they’ve announced a partnership with a big bank or tech company. But that doesn't mean revenue. In fact, when you peel the onion you find that almost all these companies have done almost no business with these announced partnerships. Ask the banks how much money they transact on the blockchain, ask IBM how many people are actually developing core business processes on a distributed ledger.

b. Valuation- this might be the most egregious thing I've seen. People compare the valuation of bitcoin to the value of the Nasdaq in 2000, the money supply of certain countries, the market caps of banks…it’s all silly. There is no real analog and it’s not different then analysts making valuation calls on pets.com in 1999 off eyeballs. The idea that we can predict the valuation of something that goes up 20x in a year is just ignorance.

6. The price going up doesn’t mean you were right — I think of the most bearish signals for this market is that everyone thinks that they were right about the blockchain because btc (and the other cryptos) have gone up in price. The price of a crypto currency does NOT mean that the actual technology worked. I think if you stepped back and asked yourself, how has the blockchain (or any of its analogs) changed society, the welfare of humanity or even the most basic inefficient systems we live with, you’d be hard pressed to find an area of change.

So yes…we’ve all made a lot of money hoarding and trading, but at some point the technology, protocols and applications underneath these assets must actually prove some utility. Otherwise, we’re just waiting for the next incremental buyer to buy the hope you bought into, without any evidence of that hope manifesting.

“Nothing sedates rationality like large doses of effortless money” — Warren Buffet

Next I hope to publish my attempt at the Bull case :)

The VERY simple bear case for bitcoin was originally published in Good Audience on Medium, where people are continuing the conversation by highlighting and responding to this story.

Sure, sure, sure — things are much faster, much more digital and much easier today. You can get better rates online for loans and accepting payments online doesn’t suck as much as it used to. All of the aforementioned companies have been wildly successful and have brought about real change — but have they actually changed the product we’re consuming? Is this not just the linear progression of an existing product and not the creation of something truly new?

What if we could harness data better and more acutely to create fundamentally new products and experiences? What if we could use all this data to create a new loan or insurance products, instead of just repackaging the same product in a slicker UI.

In fact, this may be where Silicon Valley and Corporate Innovation Arms have equal footing in defining the future. I hope and I think we’ll see:

• Non-FICO based statistics and data points to underwrite consumer loans.
• Social and physical data used to better assess health insurance or life insurance risk (to create new products).
• Consumers having access to non-traditional asset classes via automated investment products.
• Student loans that are secured by a percentage of your first ten years’ salary post-graduation.
• Using predictive analytics and machine learning to create dynamically priced travel insurance or micro duration product insurance.
• Using integrations into payment processing, HR administration and accounting platforms to generate standardized commercial credit scores for small and mid-sized businesses (new credit products).
• Consumer financing for electronics that restricts access in default but conversely democratizes and digitizes financing for the initial purchase.

This is the stuff that excites me — using data, using geolocation, using non-FICO metrics, pushing regulations for more dynamic products — and fundamentally new services.

I’m a fintech entrepreneur and investor. I’ve been amazed how much interest this space has had over the last year. It’s like fintech has become THE place to “disrupt”.

While it’s great to see the pool that I play in get so much attention, I often times find myself arguing against it. FinTech is really hard and the hubris I see in entrepereneurs and investors entering the space makes me worry that people have no idea what they’re getting into. Here’s why.

1. FinTech businesses don’t scale quickly. If you look at all the successful and hyped verticals of fintech and compare the marketshare of those startups vs the incumbants, its almost laughabale. Add all the loans originated by marketplace loan companies (LendingClub, Sofi, Prosper, etc) and compare them to one of the US banks. It’s not even close. Add up all the assets of the roboadvisors (wealthfront, betterment, etc) and compare that to just Merrill Lynch — its not even close. There are even individual team FA’s that have more assets than the entire robo industry. Do the same in payments, exchanges and trading. I LOVE all these businesses, but they are so far from truly distrupting.
2. It’s really easy to get fooled by early adopters. Early adopters of new financial products are often times very passionate, super smart and way ahead of their peers….but they arent always looking for what all of us need. In FinTech you often times see someone creating a solution for a very narrow need who is then falsely encouraged by a group of early adopters to continue to build. They end up building a product that a small group REALLY wanted and that small group then tells the entrepreneur that the product is EXACTLY what the world needs, only for the entrpreneur to find out 2 years too late that his market is tiny and his customer acquisition costs make the unit economics a failure.
3. FinTech is not an acquisitive space. When thinking about investing in any company you have to imagine an exit. What I’ve always found odd, is that while there has been strong growth in the industry, there is so little M&A. I would have assumed that the larger players would have come in and scooped up some of the lending platforms, blockchain plays or even the payment apps. I’ll talk about why this is in another post, but in short, these companies havent yet built brands that are strong enough for them to hold customers > most of us shop around for our financial products no matter the name on the “front door”.
4. The sale cycles are really long. Sales cycles in fintech are often long because they involve individuals’ finances, the movement of money or something involving a regulatory body. Large companies take their time deciding and in FinTech its even longer. This can kill a teams morale, deplete cash and I think also dramatically slow innovation. A long sales cycle hurts even more because it doesnt allow your product to get feedback quickly and hence iterate fast enough to maintain an edge. This makes being an investor very hard because you often times findyourself funding a second round before you’ve had REAL product feedback.
5. Customer acquisition is hard to hack. FinTech companies broadly have some of the highest customer acquisition costs. Very few companies have been able to find a way to truly grow viral and many have found that the need to spend to acquire actually grows over time, unlike most industries that see CAC decline once scale is hit. This makes sense though. It’s really hard to convince a random person to hand over their bank info, DOB and personal info. No matter how great the product is, that’s still a tough sell. I once remember talking to an execuive at Bank of America who told me that BofA offers $500 referral fees for brokerage accounts, his bet was all the online investing sites (lendingclub to the robo) would end up there eventually. I think this will get better over time, but its an enormous challenge.

Careful hunting…

Why FinTech is the WORST. was originally published in Listen To My Story on Medium, where people are continuing the conversation by highlighting and responding to this story.

Who am i? I’m Savneet Singh, a successful fintech founder (GBI), active early investor, married and father to 1 really cute kid, proud Sikh. GBI was/is the first electronic platform that allows investors to buy/trade/store physical precious metals. While it was focused on a niche area, the company has traded billions of dollars of assets AND importantly taught me an immense amount about the distribution of financial products and assets AND how to acquire retail individuals for fintech products

In addition to have started GBI, I’ve been an investor in a number of exciting technology companies as an advisor, angel, via an spv (or other creative means :)). These companies include LendingClub, Sofi, ZocDoc, RealtyShares, Uber, Alibaba, Palantir and about a dozen others.

How did i get here? I grew up in upstate New York, was a super competitive tennis player, went to Cornell, dreamed of being Warren Buffet, worked on Wall Street (banking and hedge funding) and then left to become a startup founder.

First Business Experience? eBay. My brother and I use to buy and sell a LOT of baseball/football/bball cards on eBay in high school (read: enough to buy our own first cars).

Who are your favorite investors? I’m a passionate value investor and have great admiration for Seth Klarman’s patience and discipline, Howard Marks’ clairvoyance, the depth of Bill Ackman’s research, the gumption of Druckenmiller and of course the clarity of thought of Buffet.

Thinkers who make me think? I enjoy reading Peter Thiel’s longer articles or speeches. He always touches on something that i’ll think about for days. I also enjoy reading about and listening to Buffet/Munger, Elon Musk, Jesse Pujji, Carlos Brito and many other business thinkers as well as Osho and Rumi for spirituality.

Non-consensus life view? I think a large part of one’s success is based off circumstance. There are many hard working, motivated and smart individuals, but few are given the right circumstance to become outliers.

Management sayings you hate? “You learn a lot from failure” — while true, I can’t stress how much more you learn from winning. “Hire the best people” — of course! the question is how do you find and hire them.

Greatest societal fear? I worry that as a society we might forget to have real meaningful experiences, where our feeling in a particular moment is outweighed by the joy of taking a picture to get “lots of likes”. While I like looking at pictures too, I worry that our culture is so focused on capturing moments, that we forget to live them.

Favorite Book? Outliers taught me how time/circumstance are huge parts of success, the zafarnama taught me compassion and the sri guru granth sahib taught me humility and love.

Greatest life lesson/admiration? My father has gone through more hardship than almost anyone I’ve known yet has showed me how to be relentless, positive and hopeful.

Guilty pleasure? I LOVE food. I will go through incredible lengths to try the worlds best food. Think — 3 hour long hikes in the jungle to try a kabob, overnight flights for a single meal, ordering everything on a menu…

1. Over the last year a number of my friends, colleagues, investors and even mentors have encouraged me to start sharing my views, particularly on FinTech and Management. I often find myself in conversations where I feel like I’ve uncovered a unique insight and rush to write it down, but never return to it until that idea/prediction comes to fruition. This blog will be my effort to share my ideas/view and hopefully collect feedback to challenge the arrogance that I find in my own idea generation.
2. In my work as an investor and advisor, I’ve always tried to share a few core lessons from my work as a fellow founder/ceo that I personally found useful. After having shared that advice with dozens of fellow founders I’ve now realized that many of the lessons that I’ve learned (and shared) are absolutely applicable to other businesses. There are many analogs that one can apply across different types of businesses. This realization is the second reason I’d like to starting sharing publically. I believe much of what i’ve learned over time can be used by others and Medium is a great “medium” for distribution.

When I was a kid I used to often say to my dad “i’m bored” and he’d always respond with “it build’s character.” It took me years to understand what he meant, but it wasn’t until this past month that I realized how important his saying was. I recently had an issue with my phone and was left phone-less for nearly 5 days. The experience, at first was quite liberating. No calls from work, no urgent emails no substance-less texts. I would walk around the city and at times instinctively reach for my phone and upon realizing that i had no phone on me, i’d smile and think that i was truly digitally disconnected. Overtime however, I began to realize just how unusual of an experience this had become for me. My mind had forgotten what it was like to think aimlessly. I’d forgotten what it was like to bored.

My phone has become my crutch. Whenever I’m faced with even the slightest moment of still time I reach for my phone. If there are 100 people in line in front of me or just 1, I always reach for my phone to distract me up until the moment i no longer need it. At the grocery store, at the gym, on the subway and even in the park. I’ve realized that every moment, of every day my mind is distracted. By work, by email, by TV and most of all by my phone. At no point during my day does my mind just sit still.

I remember going on long car rides as a child and spending hours thinking about life, family and friends. The simple day to day issues, to the larger existential problems my mind could create. Now, whenever I’m faced with travel time, I load my phone with audiobooks and my ipad with books and movies. I’ve trained myself to not want to waste a minute of my day in empty thought. This need for perpetual stimulation has led to a dependence on external stimuli.

Now I’m not one of those people who spends all day texting, facebooking or tweeting. In fact, i’m probably on the lower end of the active social networking spectrum. Yet, even I can’t seem to not reach for distraction at earliest sign of delay. So I’ve begun to wonder, is this a good thing? Is it a good thing that our minds have no time to themselves? That our bodies can’t stand the thought of quietly waiting? Is it wrong how excited we are to find a wifi connection? The pervasive nature of technology has made us all more connected and aware, but I wonder if one of the sideeffects of this interconnectedness is our new inability to be bored.

Throughout time boredom has led to great innovation and more importantly great thought. Every philosopher and great thinker of our time benefited from the ability to spend hours upon hours in self thought and reflection. They used their own minds to create their own realities. I wonder if in today’s world, while we’re gaining enormous amounts of ingenuity within technological applications, but at the same time losing one of the key aspects of true human character building. Are we stunting our character growth by removing one of the innate challenges human minds have solved for thousands of years? Have we sacrificed the creation of new spiritual or religous thoughts for modern day technology?