Carl Thoma spans the generations of Chicago private equity as prominently and as thoroughly as any individual alive today. After receiving an M.B.A. from Stanford University, Thoma in 1974 joined one of Chicago's original private equity institutions, First Chicago Investment Corp. With the bank's legendary private equity pioneer Stanley Golder, Thoma left First Chicago in 1980 to form Golder Thoma and Co., Chicago's first nonbank private equity shop. That eventually became Golder, Thoma, Cressey, Rauner Inc. It split in 1998, with another split 10 years later. Thoma, 63, is now a managing partner of Thoma Bravo LLC. Its current Fund IX closed in March 2009, with $822.5 million.

A concise, almost laconic individual whose speech and manner still betray his Oklahoma Panhandle roots, Thoma spoke recently with The Deal magazine's editor at large Matt Miller in the firm's offices, the 43rd story of a Chicago high-rise, where many of the city's private equity shops hang their hats. Here are some excerpts.

On those early First Chicago days: Whether you call it private equity, leveraged buyouts or venture capital, the industry in the early 1970s was still very finite. You knew everybody. There was a shortage of capital. The old Continental Bank of Illinois had opportunities to invest in Apple Computer. Today funding would never get out of Silicon Valley. ...

We [at First Chicago Investment] really tried to play coast to coast. The first time I went out to the Silicon Valley ... I'm a 26-year-old. Dick Kramlich [co-founder of New Enterprise Associates] picked me up at the airport in his fancy red Porsche parked at the curb, and we headed down to Silicon Valley. I got to know all those people at that time. ...

At First Chicago, we were one of the early backers of Kohlberg Kravis Roberts. The bank did a lot of lending to KKR. We were very active early on with the deals of Clayton Dubilier. We [also] did quite a few buyouts ... investing out of the holding company money. ... We did exceedingly well.

On the spinout from First Chicago: William Blair had approached Stan Golder in fall of '79. [Blair] said, "Chicago needs a private equity group [and] there is some money here in town that could support it. Plus, we could get others. We would help you go raise the fund." Stan approached me [and asked] if I wanted to go with him, and the answer was obviously yes. Then we sat down with the bank and explained the circumstances to them. They asked why we were going to do this. ... While we operated somewhat independently of the bank, our compensation was still on the pay scale that all the bankers earned. You got a lot of vacation and lot of fringe benefits, but your compensation wasn't as competitive as other people would make, because we didn't get any percentage of the profits or the gains. So we talked to the bank and asked if we could modify our compensation plan. [First Chicago president] Dick Thomas said, "Yes, we'll work on it. Put together a proposal and we'll take it to the board." Unfortunately, that was the meeting the board decided it would make a change in the CEO of the bank and [remove] Robert Abboud. That consumed the whole board meeting. Talking about our new compensation plan never came up.

Then there wasn't going to be a board meeting for another several months. Nobody wanted to address this issue. Stan finally said, "Let's just go ahead and leave." We stayed around six months to aid in the transition. In that sense it was friendly. First Chicago invested in our first fund. Stan left first of January. I stayed around until the first of May. That's when they decided John Canning should take over for our group. He ran it successfully for a number of years. Somewhere along there, the Federal Reserve felt First Chicago should stop spending its money on private equity and downstream it to make the bank stronger. They got out of the business. That's when John left and the whole team formed Madison Dearborn.

On Golder Thoma's first fund: We jokingly say we had outstanding market share at the time and have lost traction ever since. We raised $60 million, and KKR had just raised their first fund. They raised $75 million. Thirty years later, we're raising a billion-dollar fund, and KKR has raised a $15 billion fund. So somehow we didn't scale [laughs]. ...

In the first fund, $60 million was invested in 55 companies. ... We were doing a lot of venture deals in which we put a hundred or two hundred thousand in a company all the way up to putting $5 million in a KKR leveraged buyout. ...

You could imagine, there were only like three of us. Bryan Cressey had come over. We were running around everywhere giving out money. ... It was all over. We had companies in LA, Pittsburgh, Dallas, Boston, Minneapolis, Atlanta, Philadelphia. It was everywhere. ...

Our big winner was a company called Paging Network, where we made 100 times our money. We put $8 million in PageNet and got back $800 million. The limited partners that invested in our fund made 10 times their money, but that's because one investment made the whole fund. We probably had 20 of them [in which] we lost all our money. ...

When we were out raising money, one of the favorite responses we'd get from somebody who did not want to invest was, "Why should I invest in your fund when I could earn 20%?" That's when prime went to 20%. It was kind of tough sledding.

On those first investing years: We started doing a lot of what was called industry consolidations investing. We'd find an industry that's consolidating. We'd buy a company and build on it. Now they call it buy and build. We were one of the first in the United States to make [this] an aggressive activity. ...

We did the funeral homes. We consolidated golf courses ... sold them to someone who put them in a REIT ... hospitals, rehabilitation facilities where you'd go if you had a stroke or some injury. We had copier dealerships. ... We had a lot of success in managing laundry facilities in college dorms. We consolidated some temporary staffing, which provided a lot of information technology and programmers. ... Printing. ... Half went public. The others were sold to strategics. ...

That same strategy we use today, although we've modified it. We now focus a lot more on operational improvements and making sure the acquisitions get integrated properly. We focus on enterprise and software that would be sold to businesses, to municipalities, how they track properties, how they calculate property taxes. It could be a company whose software helps hospitals and banks manage a lot of data and customer records. These are all companies with $20 or 30 million in earnings. They are not venture software. These are mature, successful software companies that we buy and build them through acquisitions.

On the split: These splits come about because you have a lot of senior people and everyone has different philosophies on pace of investment, how large a fund should be. Sometimes there are just more chiefs than room to lead. We kind of went our separate ways. ... We still get along with all those guys. They're in this building.

On changes in private equity in Chicago: [Until the last decade] everyone was tied back to an extended family. What's happened in the past 10 years is that there are all these new groups that have come along, with no ties back to the original legacy. ...

A lot of them are doing a nice job. I'm just not aware of them. The community is so big. You can't be aware of everybody anymore.

On the amount of private equity money: There's so much money out there that return expectations are lower than they used to be. That's just from all this competition bidding the prices up. It's like a bond. The higher the price, the lower the return. ...

It's still a great business. We still can deliver good returns. It's just more competitive. The way the stock market performs, it makes our job easier. They're not a very tough standard to beat.