Hello and welcome to CNBC TV18 special coverage here live from Davos 2025. I'm Shireen Bhan, and joining us here bright and early is a man who spent 27 years of his career in the IT services sector and has now decided to branch out and actually invest in companies that are doing things related to technology. Frank Dusza, it's a pleasure to have you join us here. Your Upar is Recognize, a private equity company that you're now a part of. Would appreciate your time here in Davos.
Well Shireen, first of all thanks for having me. It's great to be here from Davos talking to you. Look, I think that as we were here in Davos on the eve of President Trump's inauguration, I think we're at a time when the theme of Davos is cooperation in the intelligent age. The intelligent age is a shout out to this incredible innovation that we've seen over the last few years in technology. And I think that what's going to happen is that over the coming years, the world, whether it's businesses, government, civil society, is going to get more and more technology intensive. And as the world gets more and more technology intensive, it's going to require IT services companies to help to make that technology come to life, become real for all of us. And so as we sit here today, I have tremendous optimism for what the role of IT services is going to be over the coming decade.
So potential for significant growth from here, you believe?
I think that the IT services industry is reinventing itself. We've already seen that happen over the last several years. I think there's a fragmentation that's going on to some extent where smaller companies are emerging, specialized companies in particular areas. That's part of our thesis that Recognize is investing against these smaller, more specialized services businesses. But I think you'll see pockets of very fast growth in IT services for those that have figured out how to build the operating model of the future.
Well, what is going to be the operating model of the future, Frank? Can I ask you this in the context of the AI bets that everyone's making? I mean, you walk down the promenade, everyone's hawking some kind of AI or the other. How do you differentiate yourself? How do you create moats, especially from an Indian IT services standpoint?
Yeah, you know, I think Shireen, first of all, what I would say is that I've been following AI for decades now. When I came to the United States for the first time, I came to Carnegie Mellon University because I was interested in AI. That was 35 years ago or so, and I did classes in AI. And of course, for many, many years after that, AI was somewhat in the background. But as somebody who's followed the industry, I would say that this is probably one of the most profound technology shifts and technology changes that we've seen. And so I think the opportunities are very profound. I think from a services standpoint, services businesses, we've said this for quite some time, but the moment has come now where services businesses have to get more and more IP intensive. The old model of providing just people and very knowledgeable, capable people without some form of software or other IP, now that IP could be software, it could be data, it could be algorithms in the AI world, but you've got to have some of that in order to be competitive. And so I think the IT services firms of the future are the ones that are going to be willing and able to invest in creating that specialization, and that specialization is going to come from investments in intellectual property.
So what will that mean then in terms of capital allocation, in terms of deploying capital to create these IP-led businesses that you speak of? Is there a willingness, is there appetite to do that at this point in time?
Yeah, look, I think it's difficult to make that transition, but I think the IT services, if you think about the services world and the software world, if I can put it that way, those two worlds have been relatively separate worlds in the past, and I think you're going to see those worlds coming closer and closer together. And therefore the P&Ls or the balance sheets of these service firms starting to look a little bit more like software, where you have to make some investments in R&D, allocate capital to upfront IP development, and then monetize that IP over time.
Do you believe that perhaps inorganic growth will drive this kind of IP-driven growth that you talk about?
I think it's certainly possible. I think for the larger firms that have the ability to do that, I think you'll start to see some M&A. In fact, I would argue that maybe that started several years ago. In my time at Cognizant, we bought Tetto, which was a software business. We bought it because we liked the intellectual property that they had in healthcare. They have a very strong software stack. And so perhaps that M&A and others that were done in the industry around that time was the start of it, and I think you perhaps will see more of that.
Well, what are we talking about in terms of the kind of money that will be required to make the kind of transition that you speak of from an Indian IT services standpoint?
You know, I think the jury is out, because frankly, the innovation that's taking place in AI, generative AI, agents, the agentic world that we're talking about, I think we're in the very, very early innings of that. And so I think the capital required is somewhat unknown at the moment. But what I would say is, if you look at the average software firm, the average software firm spends 15 or 20% of their revenue on R&D. And so I think that gives you some sense of potentially what might be coming down the pipe.
Let's talk about Recognize now and the kinds of bets that you're making. More than a dozen investments already done. What's driving the investment thesis at Recognize?
It's many of the things that we just talked about. So Recognize is a private equity firm. We're entirely focused on investing in and around technology services, so we are sector focused. And what we're looking for is we're looking to find the fast growth parts of IT services, find great management teams that are running services businesses in those areas, and looking for management teams and firms that have an operating model of the future, many of the things that we just talked about. And we want to provide to those firms both capital, but also we feel like we bring operating experience to the table, networks from our past, and so on and so forth. And our goal is to accelerate growth of these businesses and drive fundamental value creation. And you've already seen one exit, another likely sometime soon. We've announced one exit already, a company called Torque last year, and a few days ago we announced that one of our portfolio companies has the intention of IBM to acquire that business. That is not closed yet, it's expected to close sometime this quarter.
So what is the typical check size that you're writing for a company that you're looking to invest in today?
You know, Shireen, our first fund was just shy of $1.3 billion. We've made, as you said, about 13 investments. So on average, we are looking to deploy $50 to $100 million per investment, maybe a little bit more than that.
What about India? Is that going to be a focus area for you for Recognize?
Absolutely. You know, I say all the time, Shireen, that if you think about the global IT services industry, India in many ways is the epicenter. It has been, I think will continue to be. And so we look actively at firms both that are headquartered or domiciled in India, or that have, and also firms that have a significant presence in India. Across our portfolio, many of our firms have a significant presence in India. India is an important part of the delivery ecosystem of many of our firms, and we'll continue to look actively at it.
So what does 2025 look like in terms of the kind of capital that you're likely to deploy?
You know, we just continue to look for great investments. We don't have targets specifically to deploy capital. We look for great investments.
And what about valuations? I mean, anything that has AI linked to it even remotely has seen its valuations skyrocket. What do you make of valuations?
Yeah, you know, we still like the sector. We like the risk reward in IT or what we call digital services. And what we are looking for are firms that are well, you know, properly valued, but we think we can accelerate their growth, increase their differentiation, and therefore create returns for our investors.
So 27 years of IT services, are you missing that world, Frank?
Well, I still feel like I'm very much in that world, so it's not like I've gone from running a business. You know, Shireen, there are moments when I miss being an operator, but I think the opportunity that I have now to be an investor, to look across the industry, but also importantly for me personally to give back to another generation, a new generation of leadership teams that are building the next generation of services firms, is really rewarding. So I'm having a great time.
You know, but do you see more headwinds today for the Indian services space or more tailwinds, or is it a mix and a balance of both?
I think it's a mix and a balance of both, and I think it's uneven. I think that at this moment, this is a moment of great opportunity, but I think it's also a moment of great disruption. And so we have to be clear-eyed about that. And given that it's a moment of great opportunity and a moment of great disruption, I think there will be winners and losers in the industry. And I think the winners will be the ones that are prepared to make the investments that are necessary to build the firm and the operating model.
I don't think so. No, in fact, I think that it'll be a mix. In the Recognize portfolio, our thesis is that there's going to be a group of small, specialized firms that are really focused on particular parts of the market, and because of their focus and because of their specialization, they're going to be able to differentiate. But equally, I think there's a role for the big firms here as well. And so I think it's a question of who is able to make those investments, who's able to create that focus and differentiation, and they'll be winners and losers.
