✨Unveiling the Enigma: Mark Leonard and the Genesis of Constellation Software 🌌

A Dive into the Early Days of Mark Leonard and Constellation Software's Beginnings

Mark Leonard, the Founder and President of Constellation Software Inc. maintains a low profile, rarely granting interviews or engaging with the media. Although, his exceptional shareholder letters offer valuable insights into the company's growth, challenges and future prospects, which I hope to explore in a unique way at a later time.

Mark's official biography on the current Constellation Software Inc. (CSI) website is unassuming and has seen little update since its initial posting over 20 years ago. Oddly, a 1999 version of the website, accessed via the Wayback Machine (more to come from here ), sheds more light on Mark's background. According to this biography, Leonard founded Constellation Software in 1995, aiming to establish an umbrella organization that would finance and nurture Vertical Market Software (VMS) companies. The term "nurture" is particularly fitting, as the company's philosophy entails never selling their acquired businesses; instead, they focus on retaining them indefinitely and fostering their growth and success.

Leonard’s Biography

Trying to locate any information on Constellation and its history has led me down a seemingly barren path, as information pre 2006 IPO is scarce. I attempted to search newspaper archives for early articles about the company, but it appears they remained relatively unnoticed until their website became accessible in 1999 and their acquisitions began to make waves in the new millennium. I ventured into the depths of fintwit and unearthed a now-deleted podcast that reveals a wealth of details about Mark Leonard's early life and the genesis of Constellation Software.

the deleted podcast courtesy of @dctanner

This podcast was part of a series by Harris Computer (a Constellation Operating Group), in which Jeff Bender, the CEO of Harris, interviews Mark Leonard and persuades him to divulge substantial information about his initial venture capital endeavors and the birth of Constellation. It offers a rare glimpse into his background, family, work history, and the inception of his remarkable business empire.

The Deleted Interview

Jeff Bender Introduces Mark:

Mark founded constellation in 1995, 25 years ago, using a less than memorable initial name in his business case and pitch, referring to it simply as Software Co, over this 25 year period constellation has invested in over 500 businesses, now has more than 3 billion dollars in net revenue and more than 20,000 employees worldwide, CSI is currently organized into 6 operating groups, Harris being one of them. I have been fortunate to have been able to work with Mark for over 20 years, watching him reinvent himself and continually challenge me to be a better investor and owner of the business we buy. Please join Mark and I as we get to know him a little better and understand how he thinks about our two areas of focus; being disciplined owners of capital and great owners of vertical market software businesses, Mark Welcome to the Podcast…

In the opening moments of the podcast, Bender sets the stage for a conversation with Leonard by outlining the significant size and scale of Constellation Software. In addition to highlighting the company's expansive operations, Bender also reveals a fascinating detail about its early history. He explains that Leonard initially referred to the company as "Software Co" in his business pitch, providing insight into the humble origins of a company that has since grown to become a powerhouse in the VMS industry.

Mark on Family and Privacy 👨‍👩‍👧‍👦

Mark Leonard, the notoriously private CEO, seemed uneasy as the interview began with personal questions about his family. As someone known to shun the spotlight and media attention, the initial questions about his wife and children caught him off guard.

Bender says, “I know it’s an area you don’t typically talk a lot about… do you sort of mind sharing with us sort of what your family situation is and what your kids are up to? Leonard gave about a 3 second laugh

HAHAHAHAHAHAHAH…. family situation wow, umm so my wife and I met in Business school she is a French Canadian, she’s the nicest human being that I know, everyone adores her, she is kind and thoughtful and goes out of her way and really, I would not have achieved anywhere near what I have achieved without her support and her taking care of the family.

Even with the uneasiness of discussing his family, Leonard couldn't help but gush about his wife of over 30 years, and credited her unwavering support as the bedrock of his success, making everything in his life and career possible. Though he has four children now in their 30’s, Leonard gave them the freedom to forge their own paths in life, he mentions they get along well together and he was visiting some of them on the west coast as he was doing the podcast. Talking about his kids also appeared to to discomfort the media-shy CEO. His aversion to press interviews likely stems from a bad experience with the media as he alludes to during his early days in the venture capital world. The uncomfortable encounter made him extremely selective about what information he shares regarding both himself and the companies he's involved in.

One thing I am surprised about how open people are about themselves and families in the internet age and nothing disappears. I learned early in the venture business that whatever you say to third parties tends to get used in whatever way they wish to use it, and when I was in the venture business, I had a bad experience with the press and that really put me off talking with them and made me really careful about what information on companies we shared.

Leonard finishes his comments further discussing privacy and the internet age, misusing information and trying to insulate kids from that. He mentioned that he allowed his kids to do their own thing and says 3 minutes after being asked the initial question about his family… “so yes I have 4 kids and they are welcome to talk about how they live their lives on the internet or elsewhere.”

Jeff now fearing for his job 🤣 referenced why he asks people to talk about their families and likes using real life experiences, he appreciates Mark sharing those details. I wonder if the talk about family is why it was removed? The Podcast goes on…

Early Work Experiences 🧱🪦💪🔑🪖🏙️

During the interview, which took place in the early stages of the COVID-19 pandemic, Leonard provided insights into his daily routine and work history. He revealed that he typically wakes up between 4-5 AM each day and begins by reading three newspapers, including the Globe and Mail, Financial Times, and Wall Street Journal.

The conversation then pivoted to a discussion of Leonard's work history, triggered by a comment Bender overheard during a board meeting about a mortar mixer. While Leonard couldn't quite recall the context of the mixer, he speculated that he had likely been doing housework while under COVID-19 lockdown, like many others at the time.

This led to a recollection of Leonard's early years, specifically his time as a mason's helper while studying in school. Leonard reminisced about learning the trade from an experienced mason named Wally, whom he described as a…

Wonderful old mason he was as old as the hills, kind of like a Hobbit of a human being, small, stumpy, and incredibly muscled old guy with straw hat and truck as old as he was and tools that came from the middle ages.

Mark enjoyed masonry immensely learning the trade, working outdoors and the “idyllic” physical labor. He recalled taking breaks and reading great literature (John Fowles and John Barth) and then building stone walls, it was a remarkable time, he reflected. The job while tough gave him great satisfaction knowing that "what you did would probably still be there in 100 years time so it was pretty cool work." This experience seems to have fueled Leonard's later dedication to creating long-lasting, meaningful businesses.

The reference made by Leonard to a hobbit and the Middle Ages during the interview only serves to reinforce the perception of him as a legendary figure, akin to a wise wizard such as Gandalf. In fact, the few images (4?!) of Leonard that can be found online seem to support this characterization, as he possesses a certain wise and stoic demeanor that is reminiscent of a 🧙‍♂️🧙‍♂️🧙‍♂️

Overall, these perceptions of Leonard only add to his enigmatic persona, which is marked by a strong sense of privacy and an unwavering commitment to nurturing and growing the companies under his umbrella.

When asked about his diverse work history, in addition to masonry work Leonard shared a wide range of experiences ranging from 🪦grave digging to working as a bouncer 💪, a draftsman, turnkey at major buildings, Canadian Tire clerk, he was in the Reserve , moved furniture at nights , did research on windmills and was a warehouse worker. He believes “you take the jobs you need to take” and these jobs helped him appreciate the journey and shaped the person he is today.

These experiences provide valuable insight into Leonard's character and work ethic, highlighting his commitment to hard work and his ability to adapt to different environments and challenges.

Early Academic Career and views on life and learning 🎓🏫👨‍🏫

Leonard's academic journey was a winding path, dabbling in various faculties and universities for seven years (yes 7!) before obtaining a 3 year Bachelor of Science degree from the University of Guelph, which he tells John he didn’t necessarily choose:

Choose sounds so methodical, what I did was dabbled, so I was in many different faculties and many different universities… over a 7 year period and eventually ended up with a 3 year science degree.

Mark later completed an MBA from the Ivey Business School 🏫 at Western University, London Ontario. Leonard admits he struggled to recall a course he particularly enjoyed during that time at Western specifically. Mark amusingly acknowledges what he had most fun doing during these times was getting the professors off track:

As class ran most fun was getting them off track as they were arrogant and a poorly prepared group so that was my greatest joy at Western.

Despite reveling in the fun of his college years, he recognized the significance of being a lifelong learner, a lesson imparted by his studies. He understood the necessity of consistently enriching his mind with new ideas and knowledge, contemplating the nature of human memory and its half-life. As a result, he still continually pursues learning. Among his other cherished activities were playing bridge and engaging in various sports. Basketball, football, and particularly varsity rugby held a special place in his heart during that time, creating some of his fondest memories.

*side note I went to Western as well for Business (not Ivey), I missed him by about 25 years though 🤣 with CSU 0.00%↑ being a Canadian company and going public the year I graduated I have always followed and admired them and instead of paying off student debt or going to the London bars 🍻 I wish Invested in the stock then 💸💸…

Later in the interview, Bender highlights that the core principles of Constellation Software include decentralization, autonomy, and control at the business level. He alludes to the fact that these values likely originated from Mark and he asks how they came about. Leonard responds, revealing that it begins with his personal preference for autonomy. He dislikes being told what to do and shares an insightful quote about his approach to life, which once again casts light on his formative years.

I don’t like anyone telling me what to do, I have been convinced, I love changing my mind, it’s the neatest feeling in world to have someone take you from a position in which you’re entrenched and believe your position and have you be convinced otherwise through a rational process… I get a tingle when it happens, its wonderful…. but I don’t like anyone saying… “I am an authority figure and you do it this way”.

I can’t think of anything that annoys me more and that’s just upbringing, I grew up and got strapped by principals and I challenged teachers 😈, I left home early, I had a bootlegged radio license 🏴‍☠️, I built a 🔥FLAMETHROWER🔥… I did things that weren’t acceptable to lots of people and that ability to chose what I think is right and to defend that position if, I can, is something I can prize highly… I love those license plates LIVE FREELY OR DIE.🖖🖖🖖

Mark goes on to say he he hopes they have attracted people who feel similarly and he feels and incredible sense of independence with people he works with directly. The foundations of Constellation Software—decentralization, autonomy, and control at the business level—stem from Leonard's personal preferences.

Shift to 📈Investing and Venture Capital 🏦

The shift towards becoming an investor happened after completing his MBA, “the MBA was the thing that took a hodgepodge of jobs and education and gave it direction." After graduating, Leonard worked at a Barclays, a British bank in Toronto. This experience played a pivotal role in shaping his future career trajectory. It was during this time that a friend and mentor advised him, "you will be a terrible banker” and pushed him to go read files about the bank's clients and figure out where he would like to work. Leonard took the advice to heart and immersed himself in reading client files searching for a business that interested him, this eventually led him to the world of venture capital. 🕵️‍♂️🧐

Leonard on that time:

For a portion of the summer I did that (review files), the other portion of summer I worked on a computer system for him, a spreadsheet type program that long predated (excel) and ran on many computers and did modeling for complex leases which was great fun…. but the rest of time I read files at Barcaly’s and came across a venture capital company, one of the original sort of merchant banks that morphed into venture capital and I decided that is what I wanted to do.

His pursuit of a career in venture capital led him to work for an American bank 🏦 with a prominent venture subsidiary. Though he initially failed to join the US venture group, Leonard returned to Canada, persistently reaching out to key figures in the Canadian venture capital community. Despite financial constraints, he attended conferences, paying out of pocket when he and his wife had limited funds. Ultimately, Leonard broke into the venture capital industry, securing a coveted position after outperforming 399 other applicants in a job advertised in The Globe and Mail.

Drawn to the allure of the venture capital industry, Mark found inspiration in the stories and histories of venture capital firms that fostered the growth of exceptional companies. His journey eventually led him to Ventures West Inc., which would serve as the incubator for Constellation.

During his tenure at Ventures West, which Leonard describes as “the cream of the cop in the Ventures industry”. Leonard had the opportunity to work with some of the most remarkable minds in the industry and said Ventures West “Had some of brightest folks ever, superstars, ethical, hardworking remarkable human beings.”

Leonard was fascinated by the diverse range of projects in his personal portfolio. One day, he found himself working with a photo chemist; next, he collaborated with one of the world's leading remote sensing technologists. Another day, he partnered with a pioneering plant biotechnologist, whom he referred to as the "Dr. Frankenstein of Plants," who innovated by transferring genes and creating new plant species.

** note in biography above on the CSI website in 1999 it states among other companies “Mr. Leonard has acquired several VMS companies (Public transit, Solid Waste Management, Paratransit, Fuel Oil, Telecom Simulation and Remote Sensing) I wonder if he somehow connected back with these “leading remove sensing technologists” for one of his first deals… **

Leonard’s seeds for Constellation begin to form 🌱

His experience at Ventures West sounds captivating, and he seemingly found it engaging and Leonard emphasized that there was no issue with the people he worked with or the variety of tasks he undertook. Instead, he felt a growing need to focus and excel in a particular area, aspiring to to achieve success with his investments, rather than merely stumbling along in his pursuits.

That need for mastery and focus and becoming really good at something, drove me, towards focusing on what ended up being Constellation vertical market software and creating a permanent capital vehicle for the vertical market software industry, where you didn’t have to buy & sell a company you could keep it forever and build real businesses that last a lifetime… and build business intent on being around as long as their clients were in existence.

Mark acknowledged that his idea diverged significantly from the traditional venture capital industry, which primarily focuses on creating businesses to sell via an IPO or outright sales. This alternative approach presented a different business model for the venture industry. When asked why he chose vertical market software, Mark explained that his decision was driven by the desire to establish a permanent capital vehicle, rather than being drawn to any particularly fascinating technology. His interest was piqued by the high-quality business model this sector offered.

A Mentorship Begins: Steve Scotchmer and what Mark learned 🏇

The inspiration to seek out high-quality business models can be traced back to one individual who played a crucial role in shaping Mark's perspective. During his exploration of the venture capital landscape and various approaches, Mark conceived an idea…

One of the ideas I had, hypotheses, was that you could back great horses instead of looking for particular races in which to run, and one of the horses I backed was a guy named Steve Scotchmer. I worked for him for a number of years, he came from the advanced materials industry , looking for advanced materials companies that we could invest in and he could run and he had a great track record and he was a very thoughtful engineer and as I worked with him I always found his bar on business quality was extraordinarily high, he was looking for really really great business and we never succeeded in finding one that he wanted to invest his life with and one I would invest the ventures fund capital in.

But Steve had made some money from previous venture…. so he was also learning about investing and as he was learning about investing he was teaching me about investing, what he learned he passed onto me and told me about great the investors, Buffet and Munger who were certainly a big part of that, but there were also other people who influenced his investing philosophy as well, including some in Canada, who he introduced me to.

So here I had started off as a venture capitalist I was very tech oriented very much into science and suddenly the person who has become the most important mentor in my life, sort of hold me over to start to think about really great business models and investing.

This new perspective shifted Leonard's focus from science and technology to instead focus the quality of the businesses he was investing in, so the lessons learned from Scotchmer ultimately led Leonard to pivot towards the VMS industry, recognizing the potential in high-quality business models. In this way, Steve Scotchmer's influence was instrumental in shaping the foundation of Constellation Software and guiding Leonard on his path to success.

* Scotchmer was on the BOD for CSI from 2000-2021 and also on the Topicus board until Jan 2022 and continues to hold significant investments in $CSU.TO and $TOI.V with recent SEDAR filings indicating purchases of both stocks in 2023, so the friendship remains strong I imagine

Leonard explained the decision to focus on Vertical Market Software💻💾📀

So I was pivoting and then looking back through the portfolio of Ventures West for these for really great business models and realize a couple of these vertical market software deals that we had done were ideal except they were small. They weren’t ever going to be big business that warranted significant capital and couldn't be a big enough canvas on which to work... so I uh… came up with the idea to create a holding company for such businesses... if they were great small medium-sized businesses, why not a bunch of them, and that was the GENESIS OF CONSTELLATION.

Ventures West was initially supportive of Leonard's company idea, despite their focus on large total addressable markets and big winner approach. The firm allowed him to experiment and work on the idea, as what they were doing in Canada was not working. Mark told Bender that they (Ventures West) provided personal funding when the company went public and many of them if not all became shareholders, which surprised Jeff.

Funding is secured…

In 1995 Leonard sought funding from OMERS, the largest limited partner at Ventures West, which led to a $25 million investment to launch the business and “get on with it”. However, Leonard highlights the importance of connections in securing this funding, as he had a trusted relationship with someone from business school who worked at OMERS, but also discusses the perils of a single point of contact as that contact left a few years later after being put in a difficult political decision and Mark alludes to the relationship of trust eroding with OMERS which is why they eventually sought another large investor. The other large investor was TD Capital (Toronto based private equity fund), which later became Birch Hill Equity Partners.

*OMERS made at least one subsequent investment through a $60 million private placement in partnership with Birch Hill Equity Partners predecessor TD Capital in February 2001. Birch Hill lists Constellation as a former portfolio company on its website and held a significant stake until selling in 2012

Leonard is asked why he took Constellation Public in 2006. Reflecting on the experience, he knew the capital raised in 1995 (OMERS) didn’t have a “ticking clock” but capital raised from Birch Hill definitely did as he assumes it was a 10 year fund or Mark assumed it was. He goes on to say if you don’t find an exit for PE Firms, they find an exit for you and that usually involves “ibankers dressing you up for sale and run an auction, so going public was one of the routes to get an exit, so we explored it and executed it.”

Despite the potential challenges of going public, Leonard found the process relatively straightforward, as the company had a reasonable story to tell and the capital raised was merely providing liquidity for existing shareholders , with no new equity being issued 🛡️ This approach underscores Leonard's commitment to shareholder value and his ability to strategically manage the company's growth and financial positioning over time.

🛡️🛡️🛡️🛡️ No dilution… Mark as always looking out for Shareholders 🛡️ 🛡️🛡️🛡️

***

There is more to the interview not necessary relevant to the early days, but give it a listen! One other detail below before finishing as it touches on his early days.

Mark how times were when he started CSI in 1995 and Earned Secrets 🤫🤐

I was 39 when I started CSI. I had 4 kids, all under the age of 10, a modest house, and a mortgage. I drove a Toyota Camry and my wife had an ancient Chrysler minivan. I knew how to work ridiculously hard, and I had a decade of experience in the venture industry. That decade taught me how to collaborate with small, motivated teams, and the difference between a good and a bad business. I badly wanted to start a business where I would be fulfilled.

The most important revelation of my venture career was that vertical market software businesses have great economics but had been poor venture capital investments because they served small markets. To start CSI, I tweaked the normal venture capital playbook in an unusual way, concentrating upon the permanent ownership of many small vertical market software businesses that could share best practices. The rest, as they say, is history.

I tell this story to give two pieces of advice: 1) you don't have to be a twenty-something year old with no dependents to start a business, and 2) it is hugely advantageous to start that business in a sector where you have an "earned secret".

FROM - January 2022 letter to employees called “Message to Potential CSI entrepreneurs” for VMS Ventures a new $200 million initiative run by Constellation Software Inc (CSI).

At its core, Constellation Software is an earned secret, forged by decades of hard-won experience. They don’t buy companies for a quick exit—they nurture them, sharing insights that give each one a lasting edge. Their long-game approach is a powerful reminder: true success is built to last.

Thanks for reading.