The good news: Thoma Bravo, which has grown into a big-time private-equity tech investment firm, is about to close on the biggest fund ever raised by a Chicago firm—about $16.5 billion.

The bad: It has quietly moved most of its key decision-makers and personnel to San Francisco.

With the Chicago-based buyout firm generating nearly 50 percent returns on its software acquisitions, Thoma Bravo has tripled its headcount in the past five years, with most of that growth in San Francisco, where the investment team has shifted in recent years to be near co-founder Orlando Bravo. The Chicago office, where co-founder Carl Thoma is based, mainly serves as a back office and space for meetings.

The firm’s westward migration means San Francisco gets a bigger slice of its billion-dollar buyout bonanza. Meanwhile, Chicago’s private-equity ecosystem and economy end up with less of Thoma Bravo’s tech-centric hiring for plum investment roles, payouts to top employees, and spending in the city by a fast-growing firm.

As recently as 2014, when the firm had 33 employees, they were evenly split between San Francisco and Chicago. Now only a third of its 110 employees are in Chicago. The transfer of the firm’s nexus happened quietly over the past four years after the last investment professional exited Chicago, and a hiring binge filled Thoma Bravo’s website with California faces.

Losing Thoma Bravo’s command center to San Francisco won’t make or break Chicago’s private-equity industry, but having the firm’s burgeoning tech investment business thrive locally would have been a boon.

The firm’s septuagenarian Chicago leaders say the San Francisco shift caters to young professionals’ preferences and centralizes dealmaking in one office, away from Chicago’s rising taxes and tumult.

San Francisco’s tech cachet resonates with younger workers, says Lee Mitchell, 77, a managing partner who has long overseen finances and IT, as well as other functions, from Chicago. “They just don’t view Chicago that way,” he says. That said, the pandemic’s impact is making Mitchell rethink offices altogether, given the firm’s high productivity working from home.

Mitchell and Thoma, 71, are the only two managing partners remaining in Chicago, with the other four based in San Francisco, the firm’s only other office. Bravo, 49, whom they call the firm’s de facto CEO, wasn’t available for an interview.

Thoma also faults Illinois for the drift west, criticizing Gov. J.B. Pritzker’s policies as not good for business and noting the hundreds of millions of dollars in taxes the firm has generated for the state. Thoma Bravo has reaped gains on $50 billion injected into 260 software and technology investments over the past two decades.

Thoma also laments Chicago’s recent upheaval, which included looting downtown. “I am worried about Chicago,” he says. “Six police cars in front of your residence does not inspire confidence.”

World Business Chicago CEO Andrea Zopp counters that both Pritzker and Chicago Mayor Lori Lightfoot have successfully wooed businesses and sought to calm recent unrest. “We’re very focused on making sure we have things that tech companies need to grow and thrive,” she says.

Carl Thoma was a Chicago private-equity pioneer whose predecessor firm, GTCR, hired Bravo as an associate. After Thoma split with GTCR, Bravo became a partner in San Francisco and the architect of the firm’s software acquisition strategy.

Joe Healey, who leads Korn Ferry’s private markets recruiting from New York, says he believes Thoma Bravo is a type of private-equity firm that believes “quality control and culture are enhanced when you have (the investment team) in one place.”

He also says investment professionals, who typically spend 10 to 15 years learning the business, want to be as close as possible to leaders like Bravo. “If you want to succeed in this firm, you want to be proximate to him,” Healey says.

Mitchell says he was seeking a bigger Chicago office because finance, compliance, human resources and other staff have expanded along with the rest of the firm, at a 20 percent annual clip in recent years, but the pandemic put that search on hold.

In any case, the firm is spending much more in pricey San Francisco, where partners scour the landscape for their high-priced technology deals. “You’ve got to be where that flow of information is the richest and the most frequent,” University of Chicago Investor-in-Residence Timothy Kelly says.

Like other private-equity firms, Thoma Bravo makes money by acquiring companies nationwide and selling them at a profit. The firm more than doubled its money last month on the sale of Pleasanton, Calif.-based mortgage finance software company Ellie Mae for $11 billion.

In addition to the $16.5 billion flagship fund it’s expected to close soon, Thoma Bravo is raising two smaller funds for a combined $21 billion this year, according to a Wall Street Journal report. Pensions, foundations and other institutional investors have flocked to the firm’s funds in light of its gross annual returns of 49.6 percent on software investments, a figure presented by Thoma Bravo to the Washington State Investment Board this month.

Most private-equity firms receive 20 percent of investment gains, in addition to 2 percent management fees on assets. (Thoma Bravo declines to comment.) The income bolsters the business and delivers multimillion-dollar compensation to partners, who in Thoma Bravo’s case are fueling the San Francisco tech ecosystem.

Meanwhile, Chicago’s private-equity industry, with firms mainly investing in manufacturing, consumer food and healthcare, is growing more slowly. Though Illinois was home to some of the earliest private-equity firms, including Thoma Bravo, it has just 382 firms today compared to California’s 1,930, according to industry research firm Preqin.

Even as Thoma Bravo’s Chicago patriarchs edge toward retirement, Mitchell maintains the firm will stick with the city. He says: “When I have a successor, he/she will be in Chicago.”

A big-time health IT private-equity player is heading west as it grows” originally appeared in Crain’s Chicago Business.



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