For the past couple of years, Robert Smith’s Vista Equity Partners has been making a splash through a series of eye-catching deals in the software industry — an area that private equity firms have long been wary of.

A former Goldman Sachs banker, Smith set up Vista in 2000. Its record of buying, improving and selling software companies recently allowed it to raise $10.6 billion for the biggest ever technology-focused private equity fund. The money is going out the door just as fast: in the past 12 months, Vista has bought four companies for more than $1 billion each.

From Financial Times. Story by Tom Braithwaite

“We are very disciplined buyers,” says Smith, who complains that he, a rare black man at the helm of a large financial institution, is often unfairly targeted by the police when he is at the wheel of his McLaren car. “We manage money for teachers and firemen and municipal workers. We have never lost money on any buyout investment. The last thing they want us to do is be irresponsible with capital and we take our fiduciary responsibilities very seriously.”

Glitzy consumer internet companies such as Snap, Uber and Airbnb, have monopolised attention in the tech industry, stoking a debate over whether Silicon Valley is inflating a new bubble.

Along with groups such as San Francisco-based Thoma Bravo, Vista is at the forefront of a parallel trend of aggressive private equity investments that has the capacity to reshape the software industry.

Anthony Armstrong, head of technology mergers at Morgan Stanley who has helped sell a number of companies to the young private equity groups, believes they are blazing a new trail.

“It’s like the Golden State Warriors,” he says, comparing them to the highly successful Bay Area basketball team, which has revolutionised the sport with its mixture of pace and aggressive shot-taking. “Smaller players, moving quickly, making three-pointers.”

Vista is by no means alone. Indeed, it will soon relinquish its record as the largest tech-focused fund. Silver Lake, the Silicon Valley-based private equity firm responsible for the biggest ever tech deals such as the buyout of Dell in 2013 and Dell’s $67 billion acquisition of EMC in 2015, is raising a $15 billion fund. And the Japanese telecoms group SoftBank, primed with money from Saudi Arabia and Apple, is raising the Vision tech fund whose $100 billion target size would trump anything that has come before.

Many of the recent rapidly negotiated deals have been concluded with less due diligence than is typical, and have involved companies with higher growth but lower profits than those normally targeted by private equity firms.

The flurry of private equity investments raises important questions for the tech sector. On the one hand, it could indicate that this new brand of specialist firms has developed a secret sauce that allows it to generate reliable returns from software.

Vista’s funds have typically made returns of more than 20 percent, according to investment data provider PitchBook. However, the investments could simply be contributing to a new bubble that will inevitably lead to a lot of bad debt and failed companies.

Tech is now attracting all types of private equity firms, with the sector representing almost 40.1 percent of U.S. buyouts last year, according to Dealogic data. That is the highest proportion on record and up from around 10 percent in 2010. Established generalists such as KKR and Carlyle have been joined by tech-focused firms such as Golden Gate Capital and the newer Siris Capital.

Another tech sector crash is not inconceivable. On the face of it, that might not seem to matter to the likes of Vista, which has never sold a company through an IPO. But with private equity firms commonly buying and selling the companies between each other, the music could stop at any time.

Read more at Financial Times.