Overview
Betty Liu: Hi everyone and welcome to Radiate, the show where we interview some of the
world's most successful people to find out how they worked their way to the top. This week,
Alan Patricof, one of the early pioneers of the venture capital and private equity industries.
Alan founded Apax Partners in the late 1970s and has been involved in backing several major
companies like America Online, Office Depot, Apple Computer and he also founded New York
Magazine. In this conversation, he shares the ups and downs of an entrepreneur's life, what big
investment he passed on. Hint: You might drink it every day; and why he rarely has a bad day
anymore. Plus, he's one of the people you listeners ask to hear from. So here we go. Alan
Patricof.
Betty Liu: Alan, so good to have you on Radiate. And this, by the way, is our first video podcast.
So excited.
Alan Patricof: I'm excited.
Betty Liu: Actually, you were, requested. You know some of our listeners, we have put out a
survey that said, "Who would you like to hear from? Whose career would you like to hear
about?" And your name was on top of the list. So our listeners ...
Alan Patricof: On the top? That's pretty impressive.
Betty Liu: Yes, yes. Listeners, they wanted to know more about your career. So, let's start off
with this. If you could describe your career in a few sentences, how would you describe it?
Alan Patricof: I guess I would say I made the right moves at the right time and I was at the right
desks. By that, I mean, when I got my first job, it was total luck. It's hard to believe but the way
you got a job in 1955, before you were born, (laughing) is there were no headhunters, there
were no recruiters. I went to Ohio State, no one came out to Ohio State to find some young,
aspiring young man. I'd been offered a job at National Bank of Detroit and Caterpillar Tractor
and decided instead to come back in New York and try to get in the investment business. And I
didn't know where to go or how to do it. So what I did is literally went into every building on
Wall Street and walked from building to building and took the elevators to the top floor and
walked down through the back stairways and asked every receptionist if there were any jobs
available then.
Betty Liu: So you literally pounded the pavement then.
Alan Patricof: Exactly. It's the only way I knew how to do it. There was no other way in. I was
lucky. I can't remember what building it was but the building I did get a job in was at the top
floor. (Laughing) So, for that building I didn't have to go the whole way.
Betty Liu: Right. So you're lucky in that respect.
Alan Patricof: Yeah.
Betty Liu: And you're lucky in many respects. I mean one of the things that I find so remarkable
about your career is that like you said, you were in the right place at the right time, in many
aspects. But like very early on, you kinda got this sense that building companies was gonna be a
big thing and that this venture world, this world of venture investing was gonna be big. I mean
you're considered one of the key people who's built this whole venture capital world.
Alan Patricof: That's true to some degree I guess, but you're missing a little bit of space because
I started out in 1955 and I started in the venture world full-time in 1970, although, I backed my
first private company in 1964 while I was doing something else...
Betty Liu: What company was that?
Alan Patricof: It was a company called Datascope Corporation, which was in the medical
electronics business and actually…
Betty Liu: So, you're saying I'm missing 20 years here?
Alan Patricof: Fifteen. And the fact is that where I meant, the right desk at the right timing, is
that...my first job, I remember I went to Ohio State and I had no specific background. I didn't go
to business school and I got hired by a very, very, well-groomed Yalie from Greenwich,
Connecticut, and it was very unlikely that he would have hired a young bachelor from Ohio
State. And it was the right place to be. It was an amazing investment counseling firm. And then I
got hired by an amazing Frenchman who ran a development capital firm, which was the first
inkling of venture. It's called development capital, but it was building grand projects around the
world. And then I got hired to manage a family's money, not my family. Definitely not my family
and I managed them for many years. And then eventually, while I was there, that was when I
started a couple of companies with their money making some investments. And that's what got
me triggered into saying this is an interesting area. It was much more exciting to be involved
with private companies that you could identify with, feel some sense of authorship as opposed
to buying and selling International Paper and IBM and General Motors where there was kind of
an anonymous type of activity. And that's what got me to eventually do this in 1970.
Betty Liu: When you're building a company, what does it feel like?
Alan Patricof: Well, I don't think we can take credit for building companies. I mean
entrepreneurs build companies, maybe we're the entrepreneurs’entrepreneur.
We back entrepreneurs and our job is to stay out of the way, pick the right people...
Betty Liu: But let's say New York Magazine though.
Alan Patricof: Yes.
Betty Liu: I mean you basically founded the magazine, right?
Alan Patricof: I did that in 1966 before I had started what was then Alan Patricof Associates in
1970. And that was one of the two or three investments I made with the family money I was
managing, with their money and as a private investment. I became chairman of the board and I
helped shape that business. But the editor was the key person...he had the vision and put the
team together and...
Betty Liu: And you wanted to support that.
Alan Patricof: Yes, yes. I think that's the best thing a venture capitalist can do. Actually, what I
believe our major function as a firm today is helping young companies get access to people who
can give them business. 'Cause that's the hardest thing for a young company is to get to see the
right people who can actually use their service or their product.
Betty Liu: Well, your network is so wide, right? That's partly what they're tapping into.
Alan Patricof: That's part of it and of the people I have with me. But very often people say…they
claim "we're a value-added firm or value-added approach," which means helping them get bank
loans or helping them hire people. All of which are important. Or being on the audit committee,
the compensation committee, organizing, getting lawyers, accountants. I feel the most
important thing we can do is get them in to see someone who can possibly give them business.
Betty Liu: Why do you like doing this?
Alan Patricof: It's very exciting to get up every day. I've said this publicly on TV and in print that
the elevator door opens every day many times and you never know when someone really
exciting and brilliant is gonna walk through that. And that's the nature of the venture capital
business. It starts every day with new people...I have to say not many people who come
through that door are exciting because the ratio of companies we make investments in
compared to the ones that come in is a very small fraction.
Betty Liu: Well, what would you say? One out of a hundred?
Alan Patricof: I'd say we invest in probably maybe a little between one and two out of a
hundred.
Betty Liu: Wow.
Alan Patricof: Right now, we're seeing in New York something like 75 to 80 new deals a week
and in our Los Angeles office, we see probably 30 to 40 a week. And we're just one firm in a
very...
Betty Liu: And you're just one firm. Exactly.
Alan Patricof: Yeah, yeah. And we work a lot. We're a very transparent firm. We're very open.
And so we share a lot with other firms. And what amazes me is when we share with some of
these other firms what their flow is, the duplication is so small…
Betty Liu: So, it's not the same companies going to each firm.
Alan Patricof: Yup. It's just...
Betty Liu: What does that tell you though? I mean the fact that there are so many
entrepreneurs out there. By the way, most of whom will not make it.
Alan Patricof: Not by the way. The fact is they won't make it (chuckles).
Betty Liu: Right.
Alan Patricof: I'd say we're going through an entrepreneurial heatwave or whatever you wanna
call it (laughing) but I've never seen anything like this and...
Betty Liu: Is that good or bad?
Alan Patricof: I guess it's both. It's good in that it's channeled a lot of people who don't have in
their mind exactly what they wanna do. So, it's encouraged their creative juices. It's bad in the
sense that there's gonna be a very high failure rate. Not just that we do one or two out of
hundred, but out of that hundred 20 or 30 may get financed by somebody out there. And the
ratio of companies that can get subsequent financing is small and there just isn't enough money
around to take care of all these startups. When you think of the workspaces that are being
created or shared spaces which are happening all over the country, I mean in New York there
must be 20, 30, 40… We have entire buildings where the floor is just a hundred desks of people
starting companies. There just isn't enough money to finance them in subsequent rounds. So
maybe they get the first angel or…
Betty Liu: Right. But they have to prove something before they can raise money again, right?
Alan Patricof: Exactly. And that's...
Betty Liu: And a lot of them don't.
Alan Patricof: That's the shortcoming we're gonna find out. And I thought it would have
happened a little sooner, but the longer this wave of startups goes on, the more there are
gonna be around that are not gonna be able to get some follow-on financing.
Betty Liu: So, Alan, let's move a little bit away from talking about the industry because you
talk about that all the time. Let's talk about you. Okay? So, part of the conversation that
we've been having with people on this podcast is we wanna talk about people's careers and
their ups and downs. So, have you had any downs in your career?
Alan Patricof: Well, I'd say my downs have been mostly in making bad investments or turning
down good investments that I should have invested in.
Betty Liu: Like what?
Alan Patricof: Starbucks is probably my greatest error and I understand why I made a mistake
and I try not to do it again but it's very hard...
Betty Liu: Why did you turn down Starbucks?
Alan Patricof: I was very parochial. I lived in New York City and this was when I had Alan
Patricof Associates which became Apax.
Betty Liu: Right.
Alan Patricof: ... and it came out of an office we had in the Silicon Valley at the time. And it was
someone who was a decathlon runner, swimmer or whatever from Seattle who worked for us
who was a kinda thinky, touchy-feely. And he came up with this new coffee shop that was being
developed in Seattle. And I said, "Are you crazy? I mean we've got coffee shops in New York.
We've got two in every single block. They just call it luncheonettes or coffee shops. What in the
world do we need another coffee shop?"
Betty Liu: Why do we need another one?
Alan Patricof: Yeah. And I think I didn't understand the culture and what Starbucks was really
about. It wasn't a coffee shop. It was really a way of life and...
Betty Liu: It's a culture.
Alan Patricof: Yeah. And I didn't get it and we suffer from thinking that since we have it in New
York or it won't work in New York that it won't work some other place. That’s a discipline we
keep trying to improve.
Betty Liu: So how do you try to get out of it?
Alan Patricof: Just try to be conscious of it. And now you can't get out of it. Just to make sure
the next thing comes along and you don't think it's in New York make sure that...
Betty Liu: You try to do more research then.
Alan Patricof: Yeah. Think about the other place it may have started or where it is succeeding. I
think Starbucks had maybe half a dozen stores at that time. Now we were the original investors
in Office Depot which at that time was a new trend in wholesale office supplies and it was being
started in Florida. But somehow we caught that. Maybe there weren't office stores at every
block so...
Betty Liu: Right (laughs).
Alan Patricof: …it seemed like a good way to go (chuckles).
Betty Liu: That was a foreign concept in New York City.
Alan Patricof: Yeah...and it worked out very well for the time we were involved certainly.
Betty Liu: So for you, your mistakes are more investing mistakes then, right? That you didn't
catch that trend or the new innovation. And so you really…
Alan Patricof: Well, there was a period of time when we had a fairly large emphasis in
biotechnology in the early '80s and like a lot of other people, but that’s an investing error
again...very capital intensive, very long lead time business. Now, look how waves go right now
in the last year or two, biotech has probably been the hottest area you could possibly in.
Betty Liu: So you were early. You were a few decades early.
Alan Patricof: Yeah. And it conditioned my thinking and our thinking so that we didn't wanna be
back in biotech again.
Betty Liu: (Laughs). Right.
Alan Patricof: So we missed the cycle.
Betty Liu: See you missed that…
Alan Patricof: The cycle finally worked out. But think about it. From 1988 to 2015 is a long time.
Betty Liu: (Laughs) Right. I guess if you stuck with it, you would have eventually gotten fed up.
Alan Patricof: You'd be dead, frankly. You couldn't have afford all the losses that took place
during that time.
Betty Liu: So you really can't think of like low moments in your career…
Alan Patricof: Well…I've been lucky, I work hard, but I've been lucky. But I can say that probably
my most depressing moment was when I was raising my first institutional fund and I had raised
I think it was $25 million.. I'd never seen anything like that. My first one was $2.5 million. And
we had an investment commitment from a name no one's probably heard of today, Socony
Mobil, which then became Mobil which then became Exxon… And two days before we we're
closing, the man who had committed it decided to change his mind which is something you
don't do very often. It's just not done in commitments…a commitment by someone saying I'm
in something ...
Betty Liu: Is a commitment.
Alan Patricof: Yeah. It's commitment, you don't write it down and sign your name. And I
panicked at that time. Actually, it would have brought us under a minimum amount in which we
couldn't close. In which case, everything would have gone to hell and we would have had a lot
of people we had employed who wouldn't have had a job. And it was a very tenuous moment.
And I reached out. I think of who did I know in the board of Mobil at that time which is a public
company. And I finally found Alan Greenspan who was a friend, though I haven't seen him in
many years. And I called him up and asked if there's anything he could possibly do and they
resurrected enough of the commitment to get us over the minimum $20 million hurdle. But
those three days were pretty...
Betty Liu: Wow.
Alan Patricof: ...pretty, pretty awful days. And I'm sure other people have gone through those…
Betty Liu: Well, I hear that from entrepreneurs. I hear that from venture capitalists…
Alan Patricof: Yeah. Exactly. It's never closed till it's closed.
Betty Liu: It's never closed until the money is in the bank.
Alan Patricof: That's exactly right.
Betty Liu: When we continue, Alan on the importance of telling someone no quickly and what
advice he would give to anyone who wants to succeed in business.
Betty Liu: I've known you for many, many years and mostly in the business sense, when you
come on our show…You're an eternal optimist and you have to be in this business. But you're
also very direct.
Alan Patricof: You know it's funny you should ask this 'cause I don't write that much, but in the
last year I've written a couple of things and I'm writing something right now...But the title of it
is "You Don't Remember Me But..." And when you've been around this business as long as I
have, every week, in fact, sometimes multiple times a week, someone will come up to me who I
have no idea who it is and it always starts the same way, "You don't remember me but ..." And
that has made me think a lot about just what you're talking about, how you deal with people on
the way in your career. There's no subtlety, particularly in a business like ours, of spending so
much time turning down those other 98 people.
Betty Liu: Yes.
Alan Patricof: …how you turn it down and how you handled people and how you answer their
emails, and how you answer their letters and how you answer their telephone calls. People
don't forget, I will guarantee you. "You don't remember me but in 1972, I brought..." Believe
me it happens.
Betty Liu: X deal to you.
Alan Patricof: Yeah. Or you interviewed me for a job and now he's president of a company
some place. (Laughing) And I may have turned him down…
Betty Liu: So, how do you turn down pitches and how do you turn down people?
Alan Patricof: Oh, it's not like there's a secret...No one can be perfect but as I say, every time
someone says that to me, my heart pounds 'cause you don't know what they're gonna say
'cause they could say, "You don't remember me but I brought this and you screwed me on
something." I mean that's what you don't know.
Betty Liu: Right.
Alan Patricof: And I'm sure that this video, this conversation, if I ever write this thing, it will
evoke somebody out there who's gonna get me. But so far, I'm doing pretty well and I will see.
Like for example, I return every phone call within 24 hours and probably the same day. I try to
write notes to people…
Betty Liu: I think one of the most painful things that entrepreneurs have told me is that it's
really painful not to just get rejected but to get rejected with a really long no. Like the slow no is
extremely painful.
Alan Patricof: The next best thing to yes is a very quick no.
Betty Liu: Right. Exactly. And is that what you try to do?
Alan Patricof: Yeah. And I keep telling everybody in my office, anybody in this business when
someone brings a deal to you, you got to keep remembering...You say, How can anyone do
something? This is so crazy. Or there are 25 other people like this or something. You're thinking
that…so you gotta remember that to this person, that is the most important thing in the whole
world. They're not there as a joke. They're not there just to say, "I'm gonna take a rocket ship to
the moon." If they say they're gonna take a rocket ship to the moon, they really believe they
are and they take it very seriously. And if you treat them like they're crazy or...
Betty Liu: Or they're stupid.
Alan Patricof: … It's no different than you saying something bad about their son or daughter. It's
exactly the same. You've insulted their baby and be careful. So, if you keep reminding yourself
of that, it helps you. Sometimes you forget, but you gotta try hard.
Betty Liu: When you hear someone pitch to you, what makes you wanna invest?
Alan Patricof: I think first and foremost it always the people. I mean I'm sure you've heard it a
hundred times but it's true…
Betty Liu: I have. Yeah.
Alan Patricof: And how someone projects...I do think there's a certain value in someone who
can convey their message clearly and can motivate, not only fellow employees or partners, but
also their investors. And we've learned that one of the best indicators, not always, but a very
good indicator is when someone is starting something or building something and they're doing
something in that area similar to what they did before and that they attract people who worked
with them before. That is a good indicator...
Betty Liu: That's a positive sign.
Alan Patricof: It's a very good indicator as opposed to someone who comes in who's in a new
area and hiring people from all different parts of the world and assembling them. That risk
profile is very, very high. But remember the people who are joining, that's the most important
thing.
Betty Liu: Yeah.
Alan Patricof: The people who are joining him or her...and worked with them before and say,
"This person is a leader. I'm willing to put my trolley car on behind them and I'm not gonna vote
my money. I'm voting with my career...I'm willing to take a chance on this person." So that's a
good interesting indicator.
Betty Liu: So, it seems like you've got everything. Why do you continue to work, Alan? Why
not just enjoy the riches of your labor?
Alan Patricof: I never even considered it, frankly. When I left Apax and gave it to the partners
they wanted to run a retirement party. I said, "You're crazy. I'm not retiring. I'm just going to
the next chapter."
Betty Liu: How old were you at that time?
Alan Patricof: I was 71, which was pretty late.
Betty Liu: So you were 71 at that time.
Alan Patricof: Yeah, yeah.
Betty Liu: You're 81?
Alan Patricof: Yeah, yeah.
Betty Liu: You do not look 81.
Alan Patricof: I hope you're gonna say that again in 10 years.
Betty Liu: What is your secret? Seriously.
Alan Patricof: (Laughs) I don't know.
Betty Liu: You really do not look 81.
Alan Patricof: Exercise..Going to work every day or early in the morning. (Laughing) Staying late
and getting excited by opportunities and having a positive attitude just like you've said before.
Betty Liu: So you knew you were never gonna retire?
Alan Patricof: ...I knew I would stay as long as I was excited by the business. I have to say in the
late '90s and early 2000, it was not fun to be in this business during the last bubble...What we
were going through really, it was tough. It was no fun. And this time, I think there's a lot more
rationality in the business and I don't think we're gonna see...
Betty Liu: But if we went through something like that though would you leave? Would you say,
"Ah, forget it. I'm done?"
Alan Patricof: I don't know. I haven't even thought about it at the moment. I don't foresee it in
the near future. As long as we stayed disciplined to what we're doing and I'm fairly
optimistic...We had a pretty good record for the last 10 years and I think we'll have a good
record going forward. And I left behind a firm, Apax, which has done I'd say remarkably well
without me…
Betty Liu: Which is actually a good sign.
Alan Patricof: Yeah. Good transition. And in Greycroft, I brought in two partners early as cofounders and now added two other partners and we just made a new woman, a second woman
partner so we're ahead of the curve on that. I've always had women partners. I was probably
the first person to bring a woman into this business.
Betty Liu: So before we go, Alan, other entrepreneurs or other people who are coming up in
this world and they look at you and they look at what a great career that you've created for
yourself. What are some of the key pieces of advice? And this is where I always tell people
like let's forget the follow your passion, work hard. Like I really wanna hear something really
concrete that listeners can take away. What are like some of the key pieces of advice that
really helped you along the way or that you would give someone to really be successful?
Alan Patricof: One thing that I find is endemic in business and in the venture capital industry is
paying meticulous attention to detail and not thinking anything is too small that it's not worth
attention. I'll give you as an example, I try to do transactions and attach warrants. Warrants
have no value at that time, but if you have warrants in a lot of companies we've seen, they
would have enormous value down the road. It's a small thing. It's hard to get people to pay
attention to, to fight for those things but it has a long time impact.
Betty Liu: It pays off in the end.
Alan Patricof: But running your business, not being casual about how you spend money, not
being casual about the economics and building models and understanding what it takes to
make a profit in the business and I don't think there are enough particularly young people
today starting businesses who've thought out deeply enough, "Can I ever make money in this
business?" A lot of people are finding out now, they've started a lot of businesses that they
just...
Betty Liu: Can't make money.
Alan Patricof: There isn't enough gross margin to ever have a bottom-line profit and they never
went deeply enough into understanding their cost structure and the details involved in running
the business that would produce an ultimate return that would justify the kind of expectations
they have. So, I think being meticulous about it and working hard. I think nothing substitutes for
working hard.
Betty Liu: And how do you work hard?
Alan Patricof: Well, I mean from a time standpoint, I certainly work hard. I come in very early
and stay very late.
Betty Liu: Like what? 5:00 in the morning, 6:00 in the morning?
Alan Patricof: No. It depends whether I work out or not during the day but I'm usually in by 7:00
in the morning.
Betty Liu: Okay.
Alan Patricof: I have an early morning breakfast. I may not get in till somewhat later but I've
started earlier anyhow.
Betty Liu: But when you were building your firm...
Alan Patricof: Always the same.
Betty Liu: Were you working like 12-hour or 14-hour days?
Alan Patricof: Yeah.
Betty Liu: Okay.
Alan Patricof: And you work Saturdays and Sundays because venture business is full-time. It
doesn't stop. But I think paying meticulous attention to the business...Everyone knows who
works with me that I'm on top of, to the maximum extent possible, every company we've got in
our portfolio. They never know when all of a sudden, you're gonna send a note and say I just
saw that so-and-so did this or that. I don't treat things casually in business. I take it very
seriously. I don't think anything is a laughing matter. I mean it's something to be very serious
about how someone did this month or last month or what their projection is or how much cash
they have left to stay alive.
Betty Liu: Right. People don't think you're paying attention to that and you are.
Alan Patricof: No, no. Not that they don't think that, they know I'm paying attention to it.
Betty Liu: (Laughs) Right.
Alan Patricof: But I think that's the kind of characteristic that makes for success in running your
own business and in running a venture business. I mean in running a business, people lose sight
of the fact that cash flow is king. In fact, net cash, net free cash flow is the defining word
because what happened in the late '90s and early 2000 was all of these businesses were
financed with investor capital. And it finally got to be a day when the emperor had no clothes
on...
Betty Liu: Yes.
Alan Patricof: ...and someone recognized it and they have been doing round one, round two,
round three, round four and all of a sudden someone woke up and said, "Where's the beef?
Where is the profit gonna be?" There's a danger in this business with a lot of money around.
People keep funding companies and don't know when to stop. And I think that people who ran
businesses, younger businesses have to really be disciplined around thinking all the time about
at some point, I have to stop needing investor money to stay alive.
Betty Liu: Right. And I've gotta start making money.
Alan Patricof: Yeah.
Betty Liu: Thank you so much for joining us on this first season of Radiate. We'll be back in just a
few weeks with a whole new line up of the world's most successful people to share their stories
and insights with you. We've got a bonus episode for you next week; the best of our interviews
and some of the stuff you didn't hear. Please take a few moments to review us on iTunes and
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