Kasper Wichmann

Welcome to Balentic Edge. Today we’re joined by Gaurav Bhandari, Managing Partner and Chief Investment Officer at Long Arc Capital, a New York based private equity firm focused on building and scaling innovative financial and business services companies. Gaurav Bhandari is Managing Partner and CIO of Long Arc Capital. Before founding the firm, he spent over 20 years at Goldman Sachs where he led the private investments for Goldman Sachs investment partners.

At Long Arc, he’s now shaping a new generation of mission critical software and services businesses. Welcome, Gaurav

Gaurav Bhandari 

Thank you for having me, Kasper.

Kasper Wichmann

Gaurav you started your career as a quant, moved into banking, spent 12 years as a proprietary investor at Goldman. Tell us a bit about your journey, what shaped your investment philosophy, and how did Long Arc come into focus?

Gaurav Bhandari 

Well, I was an engineer by training. So I joined the quantitative strategies group at Goldman to help write software for our derivatives business. And that was what I knew. But as I got more and more into it, I was curious about capital markets and corporate finance and mergers and acquisitions. And it was sort of a natural progression that led to pursuing a career in investment banking.

which started with an initial focus on the financial institution space, where I very early on got involved in helping create what became the catastrophe bond market. And then did a lot of work in the financing space, helping finance LBOs around volatile assets. And you

Kasper Wichmann

Very interesting.

Gaurav Bhandari 

I know, much as I love the advisory business, I felt that the next evolution for me would be in a principling role and was lucky enough to be part of a firm that afforded me that opportunity, joined a proprietary investing team and started investing for them. And then post 2008, I became a fund manager.

and ran a growth equity fund for several years before I started my entrepreneurial journey. the catalyst for it was fairly straightforward. I’d been at Goldman for a little over 25 years. It was clear as day I wasn’t going to spend the next 25 there. But I had a need to build something.

Gaurav Bhandari

And a desire to build something of significance that perhaps if I could be so immodest would outlive me. so fueled with that immodest desire, I started this journey of building Long Arc, invited a group of people that I respected a tremendous amount and I’m lucky enough to now be able to call them my partners. And that’s how we got started.

Kasper Wichmann

Fantastic. It’s a great story For our listeners who are a little bit less familiar with Long Arc how do you describe the firm’s DNA? What kind of businesses are you backing and what defines a Long Arc platform company?

Gaurav Bhandari 

So we describe ourselves as we are growth equity investors, or we provide capital for growth to scale ups. And there’s probably 100 different definitions of what growth equity means. I’ll be more precise about exactly what we do. We seek to buy majority equity stakes in businesses that can demonstrate product market fit, or at least early stages of product market fit. And we have a very specific definition. To us, it means that the company must have revenues where it can demonstrate attractive unit economics, that we must see signs of market exercising a pull for the product. Let’s see evidence that the customers that use the product are delighted. And if we believe that

there is a product that has found residence in the marketplace. To us, that’s when the scale-up journey begins, and we like to be early on the scale-up journey. We buy control of these businesses because the scale-up journey is very different than a startup journey. And perhaps many of the skills and attributes that served you well in the scale-up journey can be counterproductive in

the scale up journey and perhaps said differently, you need a different set of skills and capabilities in the scale up journey and Long Arc is a firm that will help you navigate that journey. And so if we are something we want to be that Sherpa to help our entrepreneurs navigate the scale of journey.

Kasper Wichmann

Okay.

I’m staying with that theme because institutional investors, we like talking about innovation, we like talking about disruption, but we also worry a lot about complexity, durability, control, especially in sectors such as FinTech, enterprise software, et cetera. How do you think LPs have been evolving in the way they assess and think about these opportunities? Is there something they’re getting right?

Is there something that they’re still getting wrong or overlooking when it comes to this?

Gaurav Bhandari 

You know, look, I think if you observe what’s transpired over the last 10 years, but it doesn’t really matter if you look at it over a five year window or a 20 year window, I think one has to be very, very careful of not getting caught in the hype cycle. I think you get caught in the hype cycle. It tends to be that you either

over-invest or overpay or both. And that generally comes back to haunt you. So I think a more measured and restrained approach works well for us. So I wouldn’t paint fintech broadly in broad brushstrokes. I think there were lots and lots of pockets that have done incredibly well because

There were real market opportunities against which people who built great products, ultimately ended up building fabulous companies. And I think that there were also a lot of people caught in a hype cycle that promoted what appeared to be interesting companies against large market opportunities. But ultimately a lot of that failed because execution is hard. And so

Kasper (06:15)

Yeah.

Gaurav Bhandari 

At least the way we think about it, yes, it is important to think about a market opportunity. I think it’s very important to think about a product market fit. But really, it’s most important to think about how you execute well to build a breakthrough business with capital efficiency. And I think if Long Arc has really honed its skills over its entire existence, which now spans about six or seven years, it is

Kasper Wichmann

that we can spread to the people of our organization. But really, it’s most importantly, we’re not just getting people to come out and say, I’m afraid that this business is going to be affected. And I think it’s all about the people that see it first. And then we’ve got our business, which is not just about the people that are here. It is about the people that here, the service industry.

Gaurav Bhandari 

In that regard, how to be a good owner investor.

Kasper Wichmann

I want to get back to Long Arc, but also I have to ask this tongue-in-cheek. Has private markets and maybe private equity in particular been a bit overhyped maybe the last five, ten years?

Gaurav Bhandari

Probably so. know, anything that is successful tends to get exaggerated in the hype cycle. I think without a doubt, private equity in general, growth equity in particular has enjoyed excess returns. And so it’s not surprising that it’s caught a lot of attention and a lot of people have chased it. So I think that’s an absolute fair comment.

Kasper Wichmann

Some would argue, maybe wrongly, that, all the great firms have been built. They’re the big behemoths. They gobble up 80 % of capital. You went the other way and said, we’re going to start a new firm. Why start a new firm in an industry where the behemoths are already there and dominating?

Gaurav Bhandari

Think about if you had made that statement about any set of companies in any industry going as far back in time as you want, you would have been wrong. Right. The greatest company has not yet been built. And I think if you look at software or hardware manufacturing services,

What seemed to be the leading companies of the world 50 years ago were not the leading companies of the world 25 years ago are not the leading companies of the world today. And I would say that the same is true for private equity. I think the world we live in is inherently dynamic. I think that the world we live in, we are blessed its got

people who are incredibly innovative, leverage past experiences to build ⁓ really, really interesting businesses. So I would be bullish about the future and not think that it’s all in a rear view mirror.

Kasper Wichmann

It’s a fair point. what is it that an emerging manager, let’s define it as a first, second time, third time fund manager, can do that the old large cap firms can’t do? today? What should LPs be looking for there?

Gaurav Bhandari

At least the way we approached this question, we had to ask ourselves the question or I had to ask us what can Long Arc do better than anybody else? And again, it’s an immodest question, but I think it’s an important question. And I think you have to be cognizant that you have less resources, less money, less credibility, less of a brand, less of a franchise than almost everybody around you.

So here you are with not much of anything and an immodest goal to be the best at something. And I think the answer lies in picking something small, picking something narrow, and applying 100 % of your energy to doing that thing better than anybody else. Not because they couldn’t, but more likely because they’re not as focused on it.

Kasper Wichmann

Yeah.

Gaurav Bhandari

And if you’re lucky enough to pick something important or of consequence and you apply yourself rigorously and devotedly to excelling and solving that type of a problem, then I think by definition you’ve differentiated yourself. So I think that big companies are blessed with lots of resources, but they may not choose to focus on the one narrow thing that we are very, very focused on. And I think in that narrow thing, we can outperform.

Kasper Wichmann

So deep domain expertise, maybe more nimbleness, more flexibility or hard bandage.

Gaurav Bhandari Right, perhaps.

picking a certain type of business, to your point about domain expertise or domain focus, bringing to it an enormous focus. So choosing to do few things, but trying to do them really, really well by bringing an intense amount of effort, I think is something that small firms can do and not every large firm can replicate because

they are trying to grow at scale.

So managing a business at scale is very different than

managing a smaller business where you’re trying to craft something small in an exceptional way.

Kasper Wichmann

Very true. Switching back to Long Arc again, you describe it as a firm that builds companies rather than just buys them. Again, here may be a difference between the small and the large Can you walk us through your value creation approach and how do you think it differs from how others do it?

Gaurav Bhandari 

You know, so we buy businesses, as I stated earlier, when they show early stages of product market fit, right? So they have a product, have revenues, they have customers, they seem to be delighted. The market seems to be exercising some sort of a pull on their product. And now the scale of journey has begun. But to scale, you need to think about what does the future of my product look like? What is my product roadmap? How will I win my category? How will I extend my category? How will I expand into additional categories? What kind of an organization do I need in order to continuously deliver on a cutting edge market leading product? How, if I am releasing that product, can I ensure that my customer experience

and my customer success function adequately delivers that product to create delightful customers.

Gaurav Bhandari

How do I execute on a successful go-to-market function? How do I build a marketing function where I can amplify the delight of my customers? How do I train and recruit or recruit and train and execute on a sales motion where we can grow rapidly and efficiently? And how do you do it at scale?

Kasper Wichmann

Mm-hmm.

Gaurav Bhandari 

So as a startup, you had a band of tightly knit people who probably could fit into a large room. And just through their willpower and tenaciousness, powered their way through finding that initial product market fit. But as you try to go…

more broadly into a market and you’re trying to scale, you’ve got to build these organizational functions of product, technology, marketing, sales, customer service and success. And I think that in our experience,

our founders or our management teams necessarily, this isn’t their superpower. Their superpower was to identify the market opportunity to build a great product building

the organization isn’t always their superpower. Sometimes they’re particularly good at it, but not always. And in that regard, Long Arc is of service, is of assistance. It behooves us to adopt and execute on best in class practices. What are they? And I think with Long Arc, we then took it a step further because in our observation,

Kasper Wichmann

Yeah.

Gaurav Bhandari 

Advice on what to do is not sufficient. Even advice on how to do it is not sufficient. You have to bring capabilities to your portfolio companies to help them get the mission accomplished. And I think what we did from day one at Long Ark was to really invest in those capabilities, to see ourselves as more than advisors.

Kasper Wichmann

Mm-hmm.

Gaurav Bhandari 

And ⁓ we created an entity called VR, ⁓

Kasper Wichmann

Mm-hmm.

Gaurav Bhandari 

which really is a capabilities, a set of capabilities that we bring to our portfolio companies. And there are two important ones. Number one is access to expertise through our centers of excellence. So if a young company is trying to build a

Kasper Wichmann

Mm-hmm.

Gaurav Bhandari 

digital inbound marketing function, we try to give them access on a fractional basis to some of the world’s most talented people in that space to help them get going. And these are people who roll up their sleeves, sit alongside our management teams, and actually build that capability. And whether that is in digital inbound marketing or in product or in software architecture or in recruiting,

And for young companies, they can neither afford or even access world-class talent for these functions. think in that sense, our centers of excellence are extraordinarily enabling. And then the second thing we did, which has a larger, broader impact, is we gave each of our companies the ability to access talented people ⁓ offshore ⁓ in India.

Kasper Wichmann

And then thing that we’ve is we have a large amount of problems with the internet.

in any of our companies in Germany, the past, been all in India.

Gaurav Bhandari

India today is one of the world’s largest software factories. Most large companies in the technology space have significant operations there. But for small companies, it’s not easy to execute

Kasper Wichmann

In India, we have a of large and software large companies in the economic industry that typically operate in there. But for small it’s not easy to

Gaurav Bhandari 

well because they lack scale. And individually, our companies are all small, but across Long Ark, had sufficient scale that we created a facility in Bangalore where

Each of our companies now has a pod of talent, generally engineering talent, to help them with their engineering work or for the software development we do. And I think that it was in part a cost proposition, but really in part also a quality proposition because we have for the most part

Kasper Wichmann

Mm hmm.

Yeah.

Gaurav Bhandari 

in the last 10 years operated in a talent constraint market, especially with respect to technical talent. So giving people access to high quality talent

at a price point that is affordable, even exciting, has been a real game changer for us. So I think Long Arc is all those things that you would traditionally expect of a good investor.

Kasper Wichmann

Yes.

Gaurav Bhandari 

thoughtful, careful, diligent selection of businesses. A mindset that is that of an owner and investor. But perhaps very importantly and in a differentiated way, also a set of capabilities to enable these journeys in an efficient way.

Kasper Wichmann

So much more operational expertise hands-on. ⁓ I think that is actually rather unique, especially for smaller emerging managers that don’t have a separate setup to do this.

Gaurav Bhandari 

That’s right.

Kasper Wichmann

You invest or have the capability to invest in both the US and Europe and you also operate then for these firms in emerging markets, predominantly India. What’s happening in the world today, Gaurav How are you addressing these challenges with tariff wars and trade wars and geopolitical risk, FX volatility, et cetera?

Gaurav Bhandari 

So I think we’ve been very deliberate about portfolio construction since day one. And for better or for worse, we chose to invest in businesses that we thought would be more resilient through periods of economic volatility. So we chose to invest in B2B businesses that provide mission critical systems to their end customers.

without which our customers couldn’t generally operate their businesses. We chose to invest in businesses that were not directly exposed to consumer discretionary spending, that were not directly exposed to interest rates. And I think that served us well. It served us well through COVID. It served us well through an inflationary period that followed COVID.

And I think that while we are not immune, it’ll serve us well through all the geopolitical tensions that we’re experiencing today. How do we think about the world? look at some level, and I think we have to be balanced. We are very, very excited about the world. I think the innovations…

Gaurav Bhandari 

particularly in the world of artificial intelligence are extraordinarily exciting and open a range of possibilities that we couldn’t have easily imagined 10 years ago. And that is massive upside for what we do. And the innovations are not just in the field of technology, they’re also in the field of human longevity and all matter of things. I think that there’s a lot of reasons to be optimistic.

Kasper Wichmann

No.

Gaurav Bhandari

What is somewhat troubling and saddening is that despite having this wonderful world we all inhabit, there is political discord, unnecessary misguided polarization perhaps, geopolitical resets or tensions that creating unhelpful volatility.

Kasper Wichmann

Yeah.

Gaurav Bhandari 

and I think we have to just kind of weather the storm or navigate through all this. We could drive ourselves nuts trying to think about all the what ifs, but there are just too many to think about. So at least Long Arc has taken a view that in general pick somewhat resilient companies, operate with discipline inside your means and try to execute.

On average, over time, the world should settle down to a pretty good place.

Kasper Wichmann

Well, fingers crossed on that one, Gaurav At the moment, it seems a little bit more bleak than at other times, but I agree with you. There’s a lot of positives out there as well, which we sometimes forget. I want to double-click on the team, because you said you were honored to work with the partners that you found. For an LP, it’s often about the people. Tell us about your team. what makes you guys special.

Gaurav Bhandari 

You know, I think it started with assembling a group of people that I knew on average for 20 plus years. And I had gotten to know them because I had worked with them and I had a tremendous amount of respect for how they executed or conducted themselves professionally. They were all accomplished in the fields that they had worked on.

But importantly, they brought a set of complimentary skill sets to what I had. And I think that was important because the day one vision of Long Arc wasn’t to have six partners that resulted in six portfolios, but to have six partners that created one better portfolio than what any one person could create by themselves.

And I think we executed on that. And much as the story of Long Arc started with the partnership, it’s really the team that has been assembled around that core group that defines us today. I think we’re blessed to have recruited a younger group of exceptionally talented people who have embraced and enhanced the culture that we have sought to create and live with the mindset that we had about being good, disciplined investor owners. And so I think, you know, that’s, it’s really the people issue, you’re absolutely right, is spot on the most important issue.

And, you know, I was very blessed. worked in a firm that enjoyed an exceptionally strong culture. And I have a great appreciation for how hard that is to create. But precisely for that reason, I’ve been very focused on trying my best to create it.

Kasper Wichmann

We touched upon it, the risks that you’re seeing now and how you’re managing around it. Aside from the geopolitical risks, what keeps you up at night?

Gaurav Bhandari 

You I think of risks and really two big buckets, right? Things that we don’t control at all and might surprise us. Things we don’t control, but we can reasonably anticipate. And then things we control. And I think we try to spend the vast majority of our time on that third category.

because it’s just where we can be productive, right? And so what we control is ensuring that every single day the hundreds of people who are working on dozens of features and functions for the products our companies are selling, they execute it as well as they can. That our customers are delighted by our products. And that’s hard to execute well every single day, especially with young organizations and young entrepreneurs that are all coming into age. That’s hard. And I think that’s where we lose sleep or try to spend our time to say, hey,

Kasper Wichmann

Yeah.

Gaurav Bhandari 

Can we execute as well as we need to? And that’s our focus.

Kasper Wichmann

We’re coming to an end, but we have time for a little bit of a lightning round. One trend everybody is chasing, but that you’re skeptical about.

Gaurav Bhandari 

I think there is this idea that AI can replace not just the software, but also the person who operates that software. And I doubt that’ll be the case, though I do think that AI will help make our software much, much more powerful.

Kasper Wichmann

Build versus buy, what’s one sign a platform is ready to scale?

Gaurav Bhandari 

I think that there’s much more value to be created in building than buying. I think the market is extraordinarily efficient in terms of how businesses are sold or bought. So I think if you don’t have a real clear plan of how to build, tough to create alpha.

Kasper Wichmann

Last one, most overused word in private equity today.

Gaurav Bhandari 

AI.

Kasper Wichmann

I would have had money on that. Gaurav, thank you for joining us on Ballantic Edge. It’s been a masterclass in building high conviction, high control platforms. I love the insights and what small companies have to do. I will be listening to this podcast once or twice on my own journey. I love the insights on opportunities and the positivity and the risk.

Gaurav Bhandari 

It’s my pleasure. It’s just been really nice to get to know you and do this podcast with you. I had a lot of fun. So thank you for the opportunity as well.

Kasper Wichmann

Thank you. And for those who want to learn more about Long Arc, head to the Orca platform where you will be able to view Long Arc and where you can also contact the manager directly. Thank you everybody for tuning in to this session of Balentic Edge.