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. Francisco D'souza, it's a pleasure to have you join us here in Davos. Recognize is a private equity company that you're now a part of. I'd appreciate your time here in Davos. Let me start by talking to you about the big headline: this is of course the Trump Davos, and all eyes on President Trump and the inauguration later tonight. What's the expectation? What will this Trump regime mean for IT services?
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. I think that what's going to happen is that over the coming years, the world, whether it's businesses, governments, 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. 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 center?
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. 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, very knowledgeable and 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. 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 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. 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 services 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. 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 TriZetto, 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. 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 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 are in the very, very early innings of that. So I think the capital required is somewhat unknown at the moment. But what I would say is, you know, if you look at the average software firm, the average software firm spends 15 or 20% of their revenue on R&D. 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, Shireen, that we just talked about. Recognize is a private equity firm. We're entirely focused on investing in and around technology services, so we are sector focused. What we're looking for is to find the fast growth parts of IT services, find great management teams that are running services businesses in those areas, and looking for firms that have an operating model of the future, many of the things that we just talked about. 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. 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. So we look actively at firms both that are headquartered or domiciled in India, or that have a significant presence in India. Across our portfolio, many of our firms have 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 India.
