RIDGEWOOD, N.J. – With five children under the age of 10, Bob Gold says his personal investment philosophy is save, save, save, build, build, build and be long term. Gold also applies this philosophy to his profession as a venture capitalist. “I have always planned and never lived beyond my means,” says Gold. “It’s a good model for the way you need to run venture funds.”
Gold’s investment strategy is proving to be particularly prudent for his firm, Ridgewood Capital-where he serves as president and chief executive. In fact, it is one of the main reasons Ridgewood Capital will emerge relatively intact from the market’s downturn while many new VC funds are shuttering operations.
The firm has been in the business of running private equity funds since 1982. The firm entered the VC business in 1998, and started focusing on early-stage investments in high-tech companies. Gold says the firm was encouraged by some prominent VCs to take advantage of the VC opportunities, which he adds, with the benefit of hindsight, were really quite tremendous.
“A lot of venture firms are running scared and are concerned about the short-term implications of the market, and for good reason,” says Gold. “We’ve made money on waiting for things for five years or more and because we have financial reserves and we’re able to continue to support our assets, we are going to take an exact approach with our portfolio companies,” he adds.
Ridgewood Capital’s exact approach includes making sure good portfolio companies are adequately funded, allowing them to build value over the long term. “Hopefully when the market comes back, our portfolio companies will have their products right, we will have chosen our sectors well…that’s the time to make money.”
During its early days, Ridgewood Capital focused most of its investing activities in the energy sector compiling an enviable track record, in terms of returns, and an investor base of more than 4,500 wealthy individuals.
When making investments, Gold says he looks for two things: How many quarters is the company from profitability and how strong is the group of investors supporting the company?
“You cannot expect your company to easily raise capital from new investors in six, nine or even 12 months,” he says. “You really need to look at the current investors to make certain they are going to stand by the company. If you do inside rounds, you do inside rounds. It’s really about revenue, profitability and the strength of the investors.”
Gold adds that companies still need all of the attributes VCs normally look for-big ideas, strong management and terrific technology. “You almost assume that away now and the real question is: How quickly can these companies get profitable, and if it takes longer than expected, how strong is the investor group that will take it to the point of profitability,” he says.
Gold notes the biggest difference between the VC market’s previous boom and bust cycles and the most recent one is how unprepared many of funds were for this bust.
“The paradigm for new funds that were set up during the last couple of years were people who were tech executives, CTOs or heads of business development at large tech companies, and their primary skill, which was very important, was trying to identify promising new technologies; however, many lacked the ability to run a fund and set up reserves,” Gold says. “They never had responsibilities for profits and loss, and as a consequence they have been unprepared for the shakeout. I think you are going to see a lot of venture funds not outlast the bust, because they did not run their funds properly.”
Another major difference in the market, according to Gold, the fun is over. “As it turns out, this has become a very hard job, and the amount of hours VCs are spending at work are going up, not down, in part because VCs are spending so much time getting funding for their portfolios,” laments Gold.
“I think it’s pretty true for other VCs. At partner meetings, we talk about what a scarce resource our time has become,” says Gold. “Many of us believed-it’s almost funny thinking about it-a few IPOs from now and we are going to be wealthy and sitting on the beach, and attracting money to our funds and portfolios was going to be easy because of our enormous success. But it hasn’t turned out that way.”
At A Glance
Born: April 21, 1958 Bronx, NY
Education: Colgate University, 1980; NYU School of Law, 1984
Career Path: Ridgewood Capital 1988-Present; Associate, Cleary Gottlieb, Steen & Hamilton 1985-1987;
Family: Wife and five children- ages 9, 8, 6,4 and 1.
Favorite Book: Solomon Gursky Was Here by Mordecai Richler
Currently Reading: A Conspiracy of Paper by David Liss.
Favorite Movie: Field of Dreams
Favorite Web site: www.feedroom.com;
Favorite Historical Figure: Abraham Lincoln.
Favorite Quote: The Four Freedoms, delivered by Franklin Delano Roosevelt, on Jan. 6, 1941
Investment Philosophy: Be fearful when others are greedy and greedy only when others are fearful. Warren Buffet
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