Alan Patricof: VC’s Rollerblading Deal Maker –

NEW YORK – Alan Patricof isn’t your typical stuff shirt. In fact, he once ran a marathon in 3 hours and 31 minutes. And these days, the 65-year-old venture capitalist likes to spend at least some of his time away from the office rollerblading.

But perhaps that’s not surprising given the pace at which Patricof & Co., his 31 year-old firm, has been raising funds as of late. Just last month, the firm was preparing for a first and likely final close on its latest vehicle, the $900 million-targeted APA Excelsior VI. Patricof, who says he handed off the majority of the fundraising duties for the vehicle to the next generation of the firm’s leadership, expects the fund to close in excess of its $900 million target. Indeed, when it comes to speed, Patricof is a true reflection of its founder.

For the upcoming fund, Patricof says the firm will stick to the same investment philosophy it has followed since he founded it in 1969. And that philosophy can be boiled down to one, simple word: diversify.

“The concept was, and is, to have a diversified fund; not a pure technology fund, not a specialized industry fund….we have always been eclectic and opportunistic,” he said. Under this guiding principle the firm has built sub-specialties in the health/medical area, technology/telecom arena, business services sector and consumer-related services industries. The point of diversification, he explains, is to avoid being undone by changing business cycles, while in the process of raising and investing a fund. “What if you had set up a biotech fund? Well, biotech has not been the place to be over the last several years and biotech funds did not do very well. During the 10-year cycle of a fund patterns change,” he said. A diversified fund is able to adapt changing business cycles and avoid the ill effects of such a downturn, Patricof noted.

The firm’s investments are also diversified by stage. Ideally, Patricof said, the firm would like its investments to be one-third early-stage, one-third expansion-stage and one-third late-stage. However, over the last 18 months, the firm’s investments have focused more on early- and late-stage companies, because of the overwhelming number of expansion-stage companies that decided to go public, he added.

Memorable Deals

While his investments in both Apple Computer Inc. and America Online Inc. remain much discussed, Patricof possesses a paternal pride in a number of companies he has invested in over the years. “All your investments are your children,” he noted. “And I don’t think you say I like one child over another,’ but there are certain companies that you probably feel more pride having been involved with them at an early stage because they achieved great success and made an important contribution to their industries.”

Patricof said he is particularly enamored of his involvement with Cellular Communications Inc., which began with his help as a $1 million start-up in 1981. That initial venture has grown into five separate public companies, of which three were sold or merged into other entities and two others, NTL Inc. and CoreComm Ltd., remain independent. The various pieces of the company probably now have a combined market value of $25 billion to $30 billion, he said. Equally as exciting to Patricof was his firm’s backing of the now ubiquitous Office Depot Inc.

“We were there when there was one prototype store,” he said. “You know, when you are in the business as long as we have been, you gotta feel, well, if we hadn’t been around some of those companies might not exist.” Not to be forgotten, though, are later-stage success stories like Sunglass Hut International Inc. “We took that company from an LBO and made it a growth buyout and took it from 50 stores to 1,000 stores,” he added.

“The Heart of Invention,” a book published by Patricof & Co. in 1992 to celebrate 23 years of business, details not only the firm’s successes, but also some of its failures. Patricof said it was important to include failed companies in the book because by its very nature, the business of VC is not all about having successes – even a proud father makes mistakes. “You have failures,” he says, listing the firm’s involvement with the disk drive business in the ’80s as a mistake.

Venture capitalists – even accomplished ones like Patricof – also miss deals that in hindsight look like the proverbial sure thing. “I laughingly say in reflection, what did I do, stupid?'” Patricof noted. His firm missed Dell Computer Corp., for example, because at the time no one thought it was possible to sell computers over the phone or through the mail. Patricof & Co. also turned down that coffee juggernaut of the ’90s, Starbucks Corp. “We turned down Starbucks, frankly, because we had an East Coast mentality at the time, even though it came out of the West Coast office. Someone in New York could not understand how you needed another coffee shop. There is a coffee shop on every block. How could you need another one? Now you say, How could I do without it?'”

Today’s Market

Patricof believes there will be more expansion-stage opportunities for his next fund and fewer early-stage opportunities, because of a potentially balky stock market. “I think that all the broken IPOs, and all the companies that never even got to that stage, and all the companies that are public which can’t get secondary financing are going to have to go some place for their capital…and venture capitalists, I’m sure, are going to be very happy to finance them,” he said, adding this is what happened during previous market downturns in 1987 and 1974.

The frantic pace that has dominated the stock market and the VC market over the last two years is an anomaly that might never be repeated, he believes. “It has been such a rush. The market has hit levels, and valuations have hit levels that are inappropriate, unreasonable,” he said. Patricof is of the opinion that VCs, and other investors, need to return to a more reasonable way of judging a company’s value. “This was done by momentum theory and the so-called new metrics of valuing companies. We are going to return, somewhat, to the old metrics of earnings, something people have wanted to forget about and only focus on revenues and eyeballs.”

Born: October 22, 1934

Education: B.S. Ohio State University, 1955; M.S., Columbia Business School, 1958

Career Path: Naess & Thomas, 1955-1957. United States Army, 1958. Lambert & Co., 1958-1960. Central National Corp., 1960-1968. Northwest Industries, 1968-1969. Patricof & Co. Ventures Inc., 1969-present.

Family: Wife, Susan and Children; Mark, Jonathan and James

Favorite Book: Winter’s Tale by Mark Helprin

Currently Reading: Titan: The Life of John D. Rockefeller, Sr. by Ron Chernow

Favorite Movie: Nashville

Last movies seen: High Fidelity and Topsy-Turvy

Favorite Web site: Powells.com

Favorite Food: Spare Ribs

Favorite Travel Spot: St. Bart’s for pleasure and Burma for culture

Most Admired Historical Figure: Winston Churchill

Favorite Quote: “If I’d only stayed another 20 minutes,” Steve Jobs.

Investment Philosophy: Pay meticulous attention to detail and be totally disciplined in your decision process.

Phobias: Roller coasters and long-running ferris wheels.