No Red Lights

Reflections on Life, 50 Years in Venture Capital, and Never Driving Alone

Alan J. Patricof

• Publisher: Post Hill Press
• Year: 2022
• eBook ISBN: 9781637582947
• Topic: Business
• Subtopic: Business Biographies
• Index: Business

As featured in The Wall Street Journal! One of Business Insider's "5 Best Leadership Books I Read This Year" for 2022! A look back at entrepreneurial growth and venture capital in the last half century by one of the leading figures in the industry. Extensive media and online coverage of the business arena, news of start-ups, mergers, and deals are familiar headlines these days. But that wasn't always the case. The early years of venture capital were a far cry from today's very public dealings. Alan Patricof, one of the pioneers of the venture arena, offers a behind-the-scenes look at the past fifty years of the industry. From buying stock in Apple when its market valuation was only $60 million to founding New York Magazine to investing in AOL, Audible, and more recently, Axios, his discerning approach to finding companies is almost peerless.All of Patricof's investments—from Xerox to Venmo—share certain qualities. Each company had sound product with wide appeal, the economics were solid, and the management team was talented and committed to seeing their visions come to fruition.

Chapter 1

You Get Where You’re Going from Where You’ve Been

A typical mix of conversation was underway in the Greycroft venture capital offices one day in early 2020—back before we all decamped to our pandemic home offices. In the conference room, two partners talked about the recent IPO (Initial Public Offering) of one of our portfolio companies, the luxury consignment brand The RealReal. In one of the offices, two other employees reviewed the market projections for a start-up that builds logistics systems for grocery stores hoping to offer home delivery. An investor sat in one of the phone pods conducting due diligence on an eSports start-up, while another rushed out to watch a driverless car demonstration for Optimus Ride at the Brooklyn Navy Yard. Amidst all that bustle related to our portfolio companies—current and prospective—my partner Ian eased open the glass door to my office to talk about paint.

Paint colors, that is. We’d outgrown our offices on the twentieth floor of a Madison Avenue building blocks from Grand Central Station. New Yorkers like me refer to this part of Manhattan as “midtown,” a warren of tired fifty-year-old structures with some newer glass-and-steel monsters mixed in. Ian, between meetings with entrepreneurs and prospective investors, was overseeing the renovation of a new space on the eighth floor. Yesterday, we’d seen the designer’s first ideas, and my response was not enthusiastic. Salmon pink at the entrance, bright blues on the walls. I couldn’t see how we got there from here.

Greycroft’s twentieth-floor offices have a downtown, industrial look. When we first moved into the space in 2013, I’d wanted to capture the fashion and edge of downtown neighborhoods like Union Square and Tribeca, where New York’s venture capital firms have clustered since the 1990s. My plan was to headquarter the firm in that part of town, and I looked for more than a year, but couldn’t find anything that suited us.

Madison Avenue was a necessary compromise to get Greycroft out of a subleased suite eighteen blocks north, near Central Park, where we’d made do for five years. Even that had been an upgrade after the two years we’d spent in the offices at Apax Partners, the $60 billion private equity firm that evolved from my first venture capital business, Alan Patricof Associates. But if it was going to be Madison Avenue, I wanted to bring downtown to midtown by using exposed AC ductwork and metallic support beams in our office design, and refining it with natural cement floor, glass walls, earthy colors, and modern art.

“If it were up to me,” I said to Ian, “She would replicate exactly what we have here down there. Keep it the same.”

Ian didn’t react. He didn’t have to. Even as the words left my mouth, I knew I didn’t mean them—not exactly. I’d built my career on the ability to recognize and take advantage of change. That doesn’t mean change is easy. But it is necessary. And inevitable. Like the move to the eighth floor. Like the move I made sixteen years ago when I left Apax Partners—which no longer emphasized venture—to found Greycroft. Like the biggest, highest-impact move of my life: leaving my salaried Wall Street job in 1970 to start a venture capital business—Alan Patricof Associates (APA)—one of the first in New York.

It’s hard to get across in today’s tech-heady world how audacious that move was. The investment portfolios of the ’50s, ’60s, and ’70s were filled almost exclusively with the stocks and bonds of large, reputable public companies in traditional industries like commodities and manufacturing. I’d made my young reputation with four respected investment firms as a value investor, the approach espoused in the investor’s bible Security Analysis, by Benjamin Graham and David Dodd, and made famous by Warren Buffett and Charlie Munger at Berkshire Hathaway. I became known for making recommendations based on disciplined due diligence—a reputation I still carry with me to this day.

Yet I was also interested in young, private companies from my first days on Wall Street, beginning in 1955. I gained a high profile in the 1960s as the founding chairman of New York Magazine, and for raising money for a start-up cardiac medical device company called Datascope. Start-ups like New York Magazine don’t have financials to evaluate, and for entirely new ideas like Datascope (or, for that matter, AOL or FedEx, two of APA’s earlier portfolio companies) the market didn’t exist yet; the company had to create it.

Nonetheless, as I set out to start my own business, I knew there were exciting, early-stage companies looking for capital to grow, and private investors in 1970 could neither find them nor manage the investments once they were made. I saw a gap in the market and moved in to fill it. Through my Wall Street contacts, I was able to raise an initial $2.5 million fund.

As January 1, 1970, dawned, I stamped my Alan Patricof Associates nameplate to the entrance of One 53rd Street. My landlord was Bill Paley, the former chairman of CBS, and my downstairs neighbor was the Paley Center for Media. In the upstairs space, Frank Thomas, CEO of the Ford Foundation, kept his private office. Outside our window sat the Paley vest pocket park, and on warm days, the smells from Paley’s public hot dog stand wafted through our open windows.

Venture capital wasn’t much of an industry in 1970. It was more like an activity, its adherents a few scattered firms—most of them on the West Coast—making small investments in innovative start-ups. The National Venture Capital Association (NVCA) formed in 1973, and it was another five years until VCs had their first big fundraiser of a reported $750 million in 1978. In contrast, by the end of 2020, there was more than $548 billion in venture capital assets under management, according to the NVCA.

The environment for start-ups in 1970 was also, correspondingly, a world away from what it became in just a few short decades. Tech-focused small businesses were beginning to cluster around Stanford and UC Berkeley, many of them incubated—formally and informally—by Fairchild Semiconductor. Here on the East Coast, we didn’t have anything like that kind of concentration. It was catch-as-catch-can until the early 1980s, but by then, Alan Patricof Associates was established and investing in companies like Apple, AOL, Cellular Communications, Inc., and Tessera Technologies, among many others inside and outside tech.

More moves happened as APA matured and expanded. In the late 1970s, I met Ronald Cohen, who became my partner in the international expansion and eventual rebranding of APA as Apax (which stood for Alan Patricof Associates Cross-Border). In the late 1980s to the early 1990s, the US arm—which had always focused on providing early-stage growth capital—began doing later-stage deals. We financed companies like Sunglass Hut and Life Time Fitness, and Chevys restaurants. Those experiences gave many people on our team a taste for private equity finance. Apax moved permanently out of venture after the dot-com bubble burst.

Moves carry a lot of symbolic weight, but they’re also literal. We move on from experiences that have lived out their time, and we take on the next opportunity. I founded Greycroft in 2006, with offices in New York and Los Angeles, after the dot-com dust had settled. I still believed in a core model of providing start-up and growth capital to early-stage companies, and I wanted to realize it with a new company focused exclusively on the venture capital opportunities coming online in the new-millennium digital age. My two founding co-partners, Dana Settle and Ian Sigalow, stood at each of my shoulders as we raised the first Greycroft fund of $75 million from investors I knew trusted my instincts.

Our next major move in New York, to our current building in 2013, came at a moment when Greycroft was seven years old and closing its third fund. The firm had passed through venture infancy into adulthood, our reputation made with investments in companies like The Huffington Post, Axios, Venmo, and Buddy Media. Our move into a permanent home conveyed for us, our investors, and our portfolio companies the stability of an institution built to last. Dana and Ian also played larger roles in 2013, when we raised our third fund. In 2018 they would take the lead in management and fundraising, stepping forward as I began to step back.

Our preparations to move again came as Greycroft began its sixteenth year in business. Ian and Dana raised the sixth core fund and the third growth fund, both the largest in their categories. The size of our firm and the size of our latest funds are signs not just of Greycroft’s growth, but of a new era of change in the technology start-up environment. Research-dependent companies building AI solutions, virtual reality, gaming systems, new transportation technologies, and any variety of digital platforms have longer development timelines and multiple rounds of funding before they turn a profit, go public, get acquired, or otherwise enable an exit for their investors. Some investments are larger and involve more institutions. We’ve moved into a new era.

Yet many of the investment and start-up practices I established during my fifty years in venture still guide how we make investments as a firm and how we advise our portfolio companies. We abandoned practices that were no longer relevant or adapted them for changing circumstances. I’m often invited to share my perspectives on start-ups and investing in panel discussions, speeches, or television appearances, and I’ve had people with vastly different backgrounds suggest I write them down to share with young entrepreneurs and investors who’d like a cheat sheet for how to build or invest in high-growth businesses.

This book is my answer to their request.

Fifty years on, I’m still here and casting my vote for the start-up companies that get me excited and keep me working. In late 2020, at eighty-six years of age, I started a new venture firm, Primetime Partners, with an initial $50 million fund to invest in entrepreneurial ideas to do with aging and wellness, and to encourage older entrepreneurs to start again. What could be more exciting than investing in the fastest-growing segment of the population, the one with the most money to spend? This is really a white space that’s relatively untouched. I’m excited by this next move, and I’m really going for it—no red lights. That’s the spirit I’ve brought to every move for the last fifty years. Here, I share it with you: entrepreneurs, venture capitalists, business students, the perennially curious, or anyone who’s preparing for their next move.

Chapter 2

Sitting Shotgun

I always knew I wanted to go into finance. When I was a teenager, my father worked as a Wall Street stockbroker, and every day on the way home he’d pick up a copy of the New York World-Telegram so he could read the end-of-day stock prices. That’s how it was done in the days before Bloomberg or the internet. I can still see my father sitting on the sofa, paper open, a cigarette hanging from his mouth with the ash clinging to the burned end until it dropped into his lap. He’d light his next one off the last cinder of the first, the definition of a chain-smoker.

He showed me how to read the stock pages, with the start-and-closing prices for each of the thousands of companies trading on the various exchanges. It fascinated me to see the prices move up and down, day-over-day, often for no reason. My teenaged obsession was so complete I wallpapered my small bedroom with the front pages of corporate annual reports. When I got to college at Ohio State, I adopted finance as my major, convinced that I wanted to work on Wall Street like my father. There were other opportunities, but nothing I considered for long.

Though I did flirt. At that time, few companies made the rounds of colleges to recruit new graduates, and those that did concentrated on the Ivies. None of the Wall Street firms came out to Ohio, but I was invited to interviews at Caterpillar in Peoria, Illinois, and the National Bank of Detroit—they were the few big names in town. Through my own efforts, I also interviewed for a job with USAID in Brazil. The safe choice would have been to go with one of those options, but I couldn’t see myself building a life in any of the places I would have had to live.

I’m a New Yorker through and through. My buddies and I treated Central Park like it was our backyard when I was a kid. The noise, the people, the neighborhood feeling on the Upper West Side with the ice trucks and the coal trucks unloading through the chutes to the underground storage, and the man on the street ringing a bell and calling, “I cash clothes!”

I had no idea what that meant then or now, but somebody did, because he was there every single day. We played stickball with broom handles on the street, and stoopball off the edge of the stairs of the brownstones. All that, plus of course Wall Street, represented New York to me. After three years away at college on an accelerated program that allowed me to graduate early, I couldn’t wait to get back home.

That’s how I found myself in the hot weeks of July 1955 wearing out shoe leather in the buildings of Lower Manhattan looking for a job. I started at 110 Wall Street—the bottom of the block—and went building to building, riding the elevator to the top floor and stopping in each office all the way down to ask the receptionist if there were any job openings. Day after day for about a month, all I heard was “no”—no openings and no interest.

Then one morning in early September I arrived at 63 Wall Street and rode to the thirty-fifth floor, where I knocked on a door with the nameplate Naess & Thomas. I’d never heard of them. Once inside, I learned that Naess & Thomas designed and managed investment portfolios for high-net-worth clients. I didn’t know the Wall Street lexicon yet, and none of the investment advisory firms were famous—certainly not at the level of a J.P. Morgan or Lehman Brothers. I had no idea that “Naess” referred to Ragnar Naess, an esteemed Oslo-born economist who’d built his reputation as the head of research at Goldman Sachs. Nor did I realize until much later that Naess & Thomas was a prestigious place with a high-quality client list. All I knew was I was in the right place at the right time, because they happened to be looking...

Table of contents

• No Red Lights
• Copyright
• Contents
• Preface
• Chapter 1: You Get Where You’re Going from Where You’ve Been
• Chapter 2: Sitting Shotgun
• Chapter 3: Taking the Wheel
• Chapter 4: Steering My Own Route
• Chapter 5: Driving on the Left Side of the Road
• Chapter 6: Road Trips in Politics and Volunteering
• Chapter 7: Carving a New Path
• Chapter 8: My Next Trip
• Acknowledgments