Thirty Minute Mentors Podcast Transcript: Venture Capital Pioneer Alan Patricof

I recently interviewed venture capital pioneer Alan Patricof on my podcast, Thirty Minute Mentors. Here is a transcript of our interview:

Adam: Our guest today is a pioneer in the world of venture capital and a legend in the investment community. Alan Patricof is the co-founder of Apex Partners, one of the largest and most successful private equity firms in the world, and is the co-founder of the venture capital firms, Greycroft and Primetime Partners. Alan, thank you for joining us.

Alan: Thanks for inviting me.

Adam: You grew up in a very different America. You were born in New York 90 years ago. You started selling newspapers when you were six, long before you started investing in media companies. Can you take listeners back to your early days? What early experiences and lessons shaped your worldview and shaped the trajectory of your success?

Alan: I guess that having grown up as a very young child with the post-Depression era from 1934 until the War of 41 for America, I learned the principles of doing without or being careful about how you live your life in terms of spending and understanding that there was an unlimited sources of funding from your parents in terms of support. And when the war started, as a young kid, I was only seven years old, I collected tin cans, which you did in those days, because they were recycled, the war effort. And as you I didn't sell newspapers. I actually sold magazines at the subway station. And we collected newspapers also, which was recycled for the war effort. So I lived a very careful life growing up. As I like to say, I never was in a taxi until after I got out of college. My first plane ride was around 1954 when I was in college. And I grew up with the excitement of a first television set. late 40s and before that lived a life totally around the radio and weekends going to double features at the movies. That's what life was like and I guess that living through that period sticks with you in terms of being a little bit less frivolous in how you live your life, although there are many who lived through that same period who probably went through it differently and live a different kind of lifestyle today than that would indicate. But I think that had some conditioning on the fact that I still live a careful life. I still travel by bus and subway. I still take coach once in a while when it's a short plane ride and don't mind it in the slightest. But I've learned to spoil myself somewhat. But I still have a car and driver and I have my own plane, I have my own boat, but I live a very nice life. I don't feel missing anything.

Adam: How did you become such a great investor and how can anyone become a great investor?

Alan: Well, that's a big question. I would say be careful about what you do. You know, it's the difference between investing in public stocks and investing in private companies that I think the rules are different, completely different. When I decided to go in the venture business in 1969, 70, the person I was working for at that time, which was primarily a market family office, when I told him I was going into the venture capital business, he's trying to discourage me. He said, when you're in the public market, if you go home at night, you can either take a loosely book home with you and look at it, or you can leave it in the office. overnight decide you don't like what you have in terms of your inventory, within a matter of minutes, if not hours, you can be out of your inventory. There was no private equity business. There wasn't a venture business, but when you go to the private market, you become a partner and that black book, I refer to it that way, really referring to a loosely book that you could pull pages out of and put them in. You become a partner the second you sign your document of investing. You're in that potentially for a lifetime. So you have to think differently about when you invest privately. non-liquid securities as opposed to go into public markets where you could change your mind on a dime. From my standpoint, the world I'm in of private investments, I take a considerate amount of time before I make the investment. I like to meet the management under different conditions. If I have the luxury, I'd like to meet their significant other, whatever way, shape, or form it may be, and I like to talk to people they work for and get to know what kind of people they are, because in the end of the day, it's the jockey, not the horse that really counts. But you want to know how well they know the market they're going into, how well they know the economics of how to make a profit in the business, how well they really analyze what amount of capital it's going to take to get to some proof of concept, and what ability they have to motivate a team to follow them because if you're not a leader, you're not going to attract other people. I always say the best reference I can get on any company, because I vote with money investment, is from a former employee of someone who believes in that entrepreneur or founder so much that they're willing to give up a paid job to follow leader and the leader has to have that kind of personality, charisma and talent that attracts other people who will stick with them in good times and bad times because it doesn't go one way by any means. Those are general characteristics I look for in the market I'm in.

Adam: Alan, you brought up a lot of really interesting points as you were describing what you look for in the companies you invest in and what you look for in the people who you invest in and a lot of what you shared really centers around the importance of finding great leaders. What do you believe are the key characteristics of a great leader and what can anyone do to become a better leader?

Alan: I think people have an entrepreneurial founder talent, or they don't. It's a very unique person who can do the things I accorded to you. It's what I think makes a good leader, but I think someone who really wants to work for themselves. I think they have to be curious. They have to pay meticulous attention to details and not be sloppy about how they think about the project they're going into. They have to really understand the address market, not just the market they're going into, but the address market, which is a narrower aspect of any market. And they have to know what the competition is out there. And I think if they think in those kind of terms, and not think of being an employee or having a job, in a sense, self. Then they probably have the leadership qualities to start a business. Everybody isn't made to be an entrepreneur and start a business. If we did, we'd have no one working for the company. So you can't have too many leaders in one company. People who start companies usually stand out before and during the process.

Adam: You are a pioneer in the fields of venture capital and private equity. You mentioned that as you were starting your journey, there was no private equity, there was no venture capital. What do you believe are the keys today to excelling in both of those fields? What can anyone do to excel in venture capital and in private equity?

Alan: That's your business. You have to have all the characteristics I mentioned to succeed. And you have to really believe sometimes in markets that don't exist, in products that don't exist, that you have a vision for. And to invest in that area, you have to have confidence in the extrapolation of a market potential. After you've found the founder, you've got to be in an area where you can make an analysis of market potential. When you're in private equity, a large part of that decision process is how good you are at financial engineering and how much you understand the numbers and the potential to create that free cash flow within a reasonable period of time without running out of money and not depending on survival on a constant inflow of shareholder capital. You have to learn how to the adroit and financing business. Usually, it's an existing business at a later stage. It's need for capital and your ability to put into the equity capital debt or some form of financing to give you the leverage to give you the ability to generate cash flow that you can, if you don't have the luck of going public, you have the ability to generate sufficient cash flow to ultimately pay off your debt and produce a cash return for investors. So it takes a different type of skill up or a mental discipline to be in the private equity business. And the venture capitalists are much more risk takers. Private equity, the last thing they want to do is take risks. They want to have a certainty of cash flow and the ability to recycle funds. You probably could be successful as a founder, as a venture capitalist, which implies investing in that area. I think you have to be able to spot entrepreneurs with the characteristics I brought up. You have to also, from the standpoint of investing in this area, you have to be able to project markets and it's less the known than the unknown. People, for example, going into AI today at billions of dollars of valuation are believing the market potential to this tool is whatever they believe it is, and they're not doing it based on necessarily current earnings or cash flow, but the extrapolation of a market potential. If we're at a later stage, Five years from now, they'll be able to look at those same companies and based on their earnings and cash flows and need for capital and what they've accomplished and the team they've built and create a multiple of something, whether it's earnings or cash flow or EBITDA or revenues and the ability to do numerical calculations and create multiples. of whatever they're focused on and running them out on a discounted cash flow basis or present value basis. In the venture business, you really can't do that at all. You're dealing with the hypothetical of the future. As a venture capitalist, you have to prepare to take a certain loss ratio because everything's not going to work. No one specifically gives you the answer of what percent you lose in a venture portfolio. I've heard statements 20%, 30%, 50% can be losses because you make it up with the rest of the portfolio. In a private equity portfolio or growth stock portfolio, every loss really hurts, and you can't handle too high a percentage of losses if you want to be in the business because you're playing for a much smaller upside. In the venture business, you could be playing for 10, 20 times when you're in an initial investment. In a private equity, you may be playing for two to five. If you're optimistic and you hit something unusual, seven to 10 times, but three to five would be much more. the right. So it's a whole different risk reward ratio to the two businesses. If you're in the venture business, certainly if you're in a pre-seed or seed or all brand new startup companies, your loss ratios are going to be higher. and your tolerance for risk has got to be greater. The more you go up the scale to an A round or a B round or a C round and then get it to buy out private equity, your tolerance for risk is much, much smaller, but your upsides are smaller. I think people who are willing to take risks and understand what goes along with risk. I remember in the bubble days, which was no fun, there was every single week something in the portfolio couldn't meet the payroll for that Friday, which is an indication of the kind of risk one was taking in the early stage of the venture business. I think in the more recent period, that is not as common because people are perhaps more skilled in starting up companies, learn the lessons of the past, are better financed to start up, understand that getting to a cash flow positive position is very important. The sooner the better in order to raise subsequent rounds of financing. So I would say that I have an experience and I don't hear the industry people with that same kind of failure rates. But nevertheless, companies are going out of business, but they're going out perhaps at a slower rate of demise.

Adam: You've obviously had enormous success over the course of your career, invested in companies that everyone listening to this podcast knows, Apple, AOL, Office Depot. What do you consider to be the biggest failure of your career and what did you learn from it?

Alan: Well, I don't think there was a biggest failure. I think that I like to, with a smile on my face, say that I remember one of the earliest losses I had was in the animal feed supplement business. And I backed a very brilliant agricultural scientist out of Cornell. who really knew what he was doing. And he knew chemical processes with his eyes closed. And he put together a process for taking waste oil and converting it into animal feed supplement. Now, I only bring this up because there were four or five steps with the process. And as he would say, we've done every single one of these processes a hundred times before, saponification, sulfurization type hydrogenation, every one of these steps have been done for years. The one thing he hadn't done that I didn't focus on and he hadn't focused on, none of them had been done together, which was a whole different kettle of fish when you put a series of processes. It's kind of stayed with me that, you know, when I hear people about with new processes, new technologies that involve multiple steps, you always want to know how many times they've worked together rather than individually. I also invested early on in the plated wire business, which was a technology which was reaching its peak before it got replaced by a later technology. I also learned, they used to say gallium arsenide was the most exciting new technology of the future, except that future went on and on and on and never was realized. And you get to learn about these things and hopefully can predict them, but truthfully, we all make some of the same errors over again. It happens.

Adam: Among the lessons that you're sharing, even the most successful people are going to make mistakes, are going to fail. And as much as we'd like to avoid making the same mistake twice, it's going to be inevitable. But the key is to try to learn from our mistakes, to try to avoid making the same mistake twice to the extent possible, and to not beat ourself up when we do make a mistake because at the end of the day, you're going to get a lot of swings at the plate and it's a matter of focusing on your next at-bat instead of getting stuck in your previous at-bat.

Alan: I think you're 100% on the mark. One of my axioms that I always say is you want to wash out the most amount of risk with the smallest amount of money and you want to get to a proof point of something. as little money as you can. And also, if you beat yourself to death and you have a concept, and you are determined to prove that your concept is right, you will go down to the sea in ships, as they say, to prove you're right. A smart entrepreneur knows that an approach before they run out of money is not working and knows how to pivot. I hate to use that word, but it's the right word. Pivot into another approach and has enough charisma or confidence from his or her employees that they will buy into the new approach without jumping ship. So that's what gets the point of an entrepreneur who is a leader and motivates people and gets them to go into battle with him or her and sticks around even in some very down moments. And also recognize the talents you don't have. You may be the greatest salesperson in the whole world, but you may be lousy at understanding the economics of the business. You may be great at understanding the economics, but not have the technical smarts. Obviously, I would always prefer to back a team. Because a team is a camaraderie rather than complementary aspects of skills and a belief in one another. And hopefully, if it's a team, they've had some experience working together rather than trying out a new relationship.

Adam: It really speaks to the importance of self-awareness, know thyself, understand your strengths, understand your weaknesses, and humility, recognizing that no matter how great any one of us is, we're never going to be great at everything. We're probably not going to be great at most things. And in order to be great at anything, we need to surround ourselves with the people who compliment us. And the only way we're going to be able to do it is by possessing the self-awareness and possessing the humility to acknowledge what it is that we're not great at so that we can fill those gaps with people who are great.

Alan: It may not show much humility on my part, but as a self-promotion, I wrote a book not that long ago called No Red Lights. A lot of the things we've talked about and other things are in that, in that I felt this stage of my life, I wanted to do two things, which is why I wrote the book. By the way, the title reflects how I live my life with no red lights. I plow ahead. And that's just my lifestyle. And that's why I guess I'm in the condition I'm in at age 90. But I wanted to inspire younger people to have an interesting life and not just become monochromatic in whatever they're doing as a lawyer or accountant, venture capitalist, but to expand into philanthropy and art and music and politics or whatever else to ruin their life. And the second objective I had was to encourage older people, let's say over 60, who are thinking of retiring to think about, since I'm going to live to 114, what they're going to do with the second half of their life, and whether they want to start a new business all over again, whether they want to become a poet, an author, or do something that gives them motivation to get to live to 114. By the way, the current expectations are that lifespans are easily going to be over 120 in the decades ahead, if not greater, with new developments in biotech and pharmaceuticals and exercise and nutrition. People are going to live longer and do more interesting things with their lives.

Adam: Alan, I want to talk to you about longevity, but before we do, how can anyone get to a place where they can remove whatever's holding them back to be able to live a life where they are able to move forward with no red lights?

Alan: Well, I don't think it has necessarily to do with money. For younger people, you could start out young and just not sit at your desk till midnight, but have a broader approach to life and either be curious enough to go after opportunities to supplement your work career. or to what is presented to you, not turn away from it, but willingly try it out. I pride myself consistently to this day in trying out something new. I went to Burning Man two years ago because I just wanted to see what it was like. I ran the marathon two years ago. If someone comes up with a new idea today, I'm interested enough to do it. I think that That relates to you when you're younger. And when you get older, of course, the same applies, but also you probably have some financial resources at that point. And you can explore doing other things with, as I say, either started other business, go back in the same business you were in for the last 30 years. Do it differently because you got the biggest Rolodex. the most knowledge of the field and know where all the key players are. So I don't like hearing somebody who says I can't do it or I'll get to it tomorrow. You have to have a positive attitude and I think that also contributes to your living a long life.

Adam: It really starts with your mindset. It starts with your attitude. And to your point, that is not indexed to your age, to your bank account, to all these other variables. It is all about you. We agree completely. At the age of 90, you're still going into the office every single day, fully engaged in what you do, fully engaged in your work, living everything that you're talking about, all these great insights that you're sharing here today on 30-Minute Mentors. You not only exemplify longevity, but you invest very heavily in longevity. It's the exclusive focus of primetime partners. What are your best tips on the topic of longevity?

Alan: First of all, it's a subject that is underweighted, not recognized. And I was fortunate enough four years ago to recognize that hey, fastest growing part of the population are people over the age of 60. They have the most money to spend, and they're living longer and longer lives. There are going to be more people over 60 than there are under 18 by 2030. Why not take advantage of the opportunities because they need things? And so I, together with a partner that I had known from my time with Arianna Huffington, which she had a company called Thrive Global, which I was a board member, and the founding president was a woman named Abby Levy. And together, she and I had the same attitude about the opportunity for product services and technologies for older people, and also the opportunity to provide capital to older people who had good ideas. I have to admit, while we have out of 35 companies, four of them are run by people over 50, it's not as easy You can't go out and tell someone over 50 to start a company, but our reception room is open to people who are older with ideas and who know how to put all those things together that I said and who have the energy to do it. And there are more and more people with that energy. And at the same time, they all need products, services, and technologies to keep them living longer. We like to say that the biotech and pharmaceutical business, which we don't invest in, because it requires FDA approval, which takes a lot of money and a lot of time. But they're like our friendly cousin because they're making developments that are helping people live longer, healthier lives. And the longer they live, the more they're going to leave the services that we invest in. So we are a horizontal fund that will invest in any area as long as the company's principal market are older people. and there are a lot of them.

Adam: Given how active you are in this space given that you spend your time your team spends its time focused on Finding the best product services and technologies to invest in to help people live longer What advice do you have for anyone listening on? how to Optimize their longevity how to live a longer life and live a healthier more productive more fulfilled happier life

Alan: Well, I'd say first of all, keep working and don't retire. Second of all, I would say, start up every day with a positive attitude. Don't put off things till tomorrow that you can do today. well, I'm not saying become a vegetarian or any other special type of eating, but eat in moderation, reasonable amount, obviously drink in moderation. I think some of my key things are I walk every place. Going to the theater, if I'm going to work, I walk every place. So every time I have an opportunity. So I put in three or four miles a day walking and then weekends, eight to 10 miles. And I think that's principle then. I have a trainer three times a week doing intensive exercise. I go to Pilates once a week. And as I say, I walk with my wife actually almost every day if we can. But I pick up walking from the other things I do. I weigh myself every morning and every night. And if I gain more than three pounds, I skip a meal the next day. So it's a way of putting discipline into your life. So those are some of the things I also have a kind of funny thing that when I started dating my wife, my previous wife died of Alzheimer's about four years ago. I recently remarried. In the course of dating her, I started learning about the fact that when we go out to dinner at restaurants and that I don't believe in taking baggies home. And so I started with her agreement that we would split every meal. And it's crazy, but I can tell you it's been an amazing part of our keeping ourselves both disciplined. You just don't realize how much food you're served and there's a compulsion to eat it all. And by what we're doing, we've both kept our weights down in the same level for a couple of years. So I think being disciplined, I don't need Ozempic or anything like it.

Adam: A lot of what you're sharing, committing to, walking, doing Pilates, training, eating healthy, watching what you're eating, approaching your life with discipline, comes down to what we talked about earlier. Adopting a mindset that is committed to showing up every day with intent, showing up every day with the desire to want to be here and want to be here at your very best. And when you start off that way, you're going to be a lot more likely to get there.

Alan: Oh, that's what I think. And so far I'm proving it. We'll see if I reach my objective of 114, but I did promise my wife 24 more years of marriage. So we'll see.

Adam: I love it. Alan, what can anyone listening to this conversation do to become more successful personally and professionally?

Alan: I recently had, not that long ago, a 90th birthday, and my sons had collected about 25 videos from people in business, friends, et cetera, and they asked them for three words about me. It's very embarrassing, but there was a consistency, which I was interested in seeing. I think that honesty, having an enormous curiosity about what's going on around me and what's not going on around me, having an enthusiastic lifestyle. I hate to use the word, but I'm being honest, the energizer buddy. I mean, I am very much an active person. One of my granddaughters who's 14 said, No wonder your title of your book is you really do walk without paying attention to red lights. You're going to kill me. But I run a fast-paced life. I'm triple booked almost every night of the week, including tonight. And I assume tomorrow I haven't looked, but whatever today or tomorrow is, by the way. So I'd say that's my lifestyle. Everybody can't live that. But I would say I tend to have friends around me. Not all, but many of my friends are similar. I'm not attracted to dull, boring people who live in a negative world and who don't like to try things. As long as I keep doing that, my wife seems to feel we're going to have an exciting marriage in the next 24 years.

Adam: Honesty, curiosity, and enthusiasm. That's a pretty good formula for success. You will attract the energy that you put out. Focus on who you are, how you're showing up, and when you show up as your best self, other people are going to recognize it and you're going to attract the kind of people who are going to elevate you, uplift you, and allow you to enjoy the kinds of great experiences, Alan, that you've been able to enjoy over the first 90 years of your life.

Alan: Thank you.

Adam: Alan, thank you for all the great advice, and thank you for being a part of Thirty Minute Mentors.

Alan: Thank you for inviting me.


Adam Mendler is an entrepreneur, writer, speaker, educator, and nationally recognized authority on leadership. Adam is the creator and host of the business and leadership podcast Thirty Minute Mentors, where he goes one on one with America's most successful people - Fortune 500 CEOs, founders of household name companies, Hall of Fame and Olympic gold medal-winning athletes, political and military leaders - for intimate half-hour conversations each week. A top leadership speaker, Adam draws upon his insights building and leading businesses and interviewing hundreds of America's top leaders as a top keynote speaker to businesses, universities, and non-profit organizations. Adam has written extensively on leadership and related topics, having authored over 70 articles published in major media outlets including Forbes, Inc. and HuffPost, and has conducted more than 500 one on one interviews with America’s top leaders through his collective media projects. Adam teaches graduate-level courses on leadership at UCLA and is an advisor to numerous companies and leaders. A Los Angeles native, Adam is a lifelong Angels fan and an avid backgammon player.

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