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9Questions is our Q&A series featuring key decision-makers in leveraged finance — get in touch if you know who we should be talking to!

David Flannery is president and senior managing director of Vista Credit Partners (VCP), the credit investing arm of Vista Equity Partners. He reports directly to Vista’s founder, Robert F. Smith, and oversees all credit transactions. 

Flannery spoke to 9fin about the resilience of enterprise software companies in a recessionary environment, the emergence of generative artificial intelligence technologies, and his work with New York City-based non-profit DREAM.

1) You were hired five years ago from Blackstone’s GSO Capital to expand Vista’s credit arm. The private credit asset class has exploded since then, so how has that shaped VCP’s strategy?

This is a very exciting time for private credit, especially software credit. Ensuring we continue to scale our platform to match the market opportunity and increased investor demand has been a key focus of the firm. We believe there is immense value and downside protection in senior parts of the capital structures of high growth enterprise software businesses, and we have adopted a multi-faceted strategy to make sure we remain well-positioned to capitalize on the opportunities ahead.

2) Enterprise software companies are the core of Vista’s strategy. Has the recent market dislocation changed the way you view this particular segment of tech?

If anything, we are even more bullish on the opportunity. Our platform is designed to invest across market cycles in both benign and more volatile market environments, seeking the best risk-reward and alpha generation opportunities across the software credit landscape. Like Vista’s private equity strategies, we focus on companies that offer mission-critical solutions with cycle-resilient business models across a broad range of industries which provides for diversified end-market exposure. The recent market environment has underscored the importance of investing in this segment, with broad retrenchment from traditional sources of growth capital and no clear path to unlocking certain value through the public markets. 

3) Generative artificial intelligence is the talk of the town. What is Vista's take on this emerging technology and is there a possibility of incorporating these models into the dealmaking process?

We are always exploring different ways to adopt new tools to drive increased performance and efficiency across our platform. That said, from a transactional perspective, one area that cannot be completely automated is the ability to go out and find deals with great companies. You need access and relationships with founders, boards and senior leadership teams. You need to work closely with these teams to understand their businesses and find the right structures to meet their needs. In other words, there is still a very high touch human element central to the way we go to market, and that is unlikely to change anytime soon.

4) A signature offering of Vista is the “FounderDirect” strategy — can you tell us more about this?

FounderDirect is our direct lending channel that provides non-dilutive capital solutions to later-stage enterprise software companies. This type of strategic financing has not always been available to mature, high growth private software companies at the scale they need, and we take a lot of pride in tailoring each deal to meet the specific growth needs of our counterparties – be it bridging towards an IPO or other milestone, financing an acquisition or funding a critical growth initiative.

5) Last November, Vista hired Greg Galligan from Ares to manage and expand the direct lending business. What are your plans for this team in 2023?

Greg has been a terrific addition to VCP, and his 20+ years of experience will help us continue to scale and become a more dynamic solution provider across all of our channels. Over the last decade we’ve built an incredible platform backed by a highly experienced team of credit investment professionals. VCP has experienced record deployment during the first half of 2023, and we expect to continue to strategically build out our team to further sharpen our differentiated sourcing, underwriting and execution capabilities moving forward.

6) Where are you finding deals in the non-sponsored tech space?

Enterprise software is deeply embedded in global business and commerce, and our financing partners serve a wide spectrum of industries and verticals. So, we lean into the breadth of the Vista ecosystem to source unique credit opportunities in every corner of this market. 

Over the last several years we’ve had consistent success finding founders and management teams looking for non-dilutive capital to invest in their businesses, and demand for our products has certainly accelerated recently due to volatility in the public markets and banking sector.

7) What are the opportunities for ARR loan financings over the next 12 months?

We continue to see major deployment opportunities as sponsors and companies seek out alternative financing solutions while they await a broader thaw in the debt and equity markets. We believe these opportunities will benefit specialty lenders in the software space, particularly disciplined and experienced investors backed by a long-term capital base.

8) In 2022, we saw sponsors tap direct lenders for LBO financings but some people have suggested the trend is beginning to reverse in favor of broadly syndicated debt — which of these markets is most compelling to you right now and why?

Direct lending. Even before the recent market dislocation, private credit was quickly emerging as a highly durable asset class, with more and more market participants recognizing its long-term benefits and assessing its relative advantages to the syndicated debt and bond markets. You’re seeing that trend continue to play out across the market today, with many large asset managers making significant investments to bolster their credit platforms as they look towards the future.

9) Outside of the credit market, you serve on the board of DREAM, a non-profit organization serving New York City youth. Can you tell us more about it?

To quote one of my colleagues, “Talent is equally distributed, but opportunity is not.” It’s been a great honor to serve on DREAM’s Board of Directors, an organization that has grown from a scrappy little league on a vacant lot to a charter school network that serves thousands of Pre-K to 12 students throughout East Harlem and the South Bronx. 

The ability to access educational resources and after-school programming is critical in the communities we serve, and it has been gratifying and humbling to work with a non-profit that has touched so many lives in such a positive way.

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9Questions — David Flannery, Vista Credit Partners

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