Private Equity Giant Warns Software Sector About Excessive Stock Compensation Costs
Orlando Bravo issued a stark warning to the technology industry during the World Economic Forum in Davos, the billionaire investor argued that bloated stock-based compensation is masking true profitability, he believes this practice must end as valuations reset permanently.
Post-Growth Era Defines New Economic Reality for Tech
The software industry is entering a difficult transition period, valuations for public companies have dropped by roughly 30 percent year-over-year. This decline is not a temporary market dip, investors are reacting to genuine fears that artificial intelligence might replace traditional software business models. Public markets previously ignored stock-based pay as a non-cash expense, however, that sentiment is shifting rapidly as financial scrutiny increases. Companies can no longer hide behind high growth metrics while losing money, this creates a specific environment where actual profitability matters more than revenue expansion, the market is signaling that the era of growth at all costs has officially ended.
Thoma Bravo Strategy Targets Unprofitable Compensation Models
Orlando Bravo revealed his firm is sitting on a $24.3 billion fund to acquire struggling companies, his primary target is the "hidden cost" of employee equity packages. The investor noted that many public software firms appear profitable only because they exclude massive stock grants from their expenses, this accounting trick is no longer accepted by smart investors. Bravo asserts that less than 50 percent of software companies are truly vulnerable to replacement by AI, yet the fear of disruption has lowered prices enough to create a massive buying opportunity for his firm.
Operational Changes Expected for Acquired Firms
The private equity firm plans to slash stock-based compensation significantly to improve margins, past examples show reductions from 22 percent of revenue down to just 6 percent within two years. Bravo explained that high levels of unvested equity make take-private deals too expensive, therefore he intends to "reset" equity pools after acquiring companies. This approach treats employee stock as a real expense rather than free money, it forces companies to operate with actual cash profits in mind, the firm will prioritize businesses with deep domain expertise over general productivity tools.
Tech Workers Face End of Guaranteed Wealth
The days of becoming a millionaire through entry-level stock grants are fading quickly, employees at mid-tier software firms will see compensation shift toward strict performance hurdles. This change signals a broader move away from restricted stock units, workers must now demonstrate direct value to earn significant equity. Talent with specialized knowledge will survive this transition, generalist engineers face higher risks of being consolidated or replaced by automation tools as companies tighten their budgets.
Thoma Bravo views the current fear around artificial intelligence as a strategic opening, the firm expects to execute a wave of major acquisitions throughout 2026 as the market stabilizes.
