Like watching Gary Coleman torture Mr. Drummond on Saturday nights, Generation X has a collective memory of shoving tokens into arcade games while chewing on lousy pizza at the local Chuck E. Cheese. What is missing from the recollection, however, is that behind the Space Invaders machine were hoards of parents begging the theme restaurant’s besieged franchisee for a fiscal piece of the grease-stained pie.
And if the Chuck E. Cheese happened to be housed anywhere near Washington D.C., chances are that the parents were busy hitting up Patrick “Pat” Hopf. At the time (circa 1982), Hopf had parlayed his restaurant industry analyst gig into a CEO position with Richmond, Va.-based Family Entertainment Centers Inc. The company thrived following a detailed menu upgrade, and soon brought in more revenue than any other comparable Chuck E. Cheese franchise chain owner.
Hopf was wary of the success, however, already having seen enough consumer cycles to know that the Pac-Man Era would not last forever. He began formulating a neuveaux beer garden concept called Colorado Cafe, but he didn’t move fast enough. Before a single keg was tapped, Family Entertainment Centers filed for Chapter 11 bankruptcy. Hopf resigned his post and moved on to T. Rowe Price before launching an independent venture capital group for St. Paul Fire & Marine Insurance Co.
Nineteen years later, Hopf seems determined never again to stick with something too long. In this case, it’s his 14-year tenure as the head of Minneapolis-based St. Paul Venture Capital (SPVC). The firm, with $3 billion under management, announced in March that its first and only managing general partner was stepping aside. The move has actually been in the works since late 1998, when Hopf sent out a memo saying that he hoped someone else would be minding the store by the first half of 2002.
“What I told the group was that 14 years is the longest anyone should be in a position like this, and that’s probably even a bit too long except that we had been a real start-up when I joined,” 53-year-old Hopf says. “If the President of the United States is only allowed to do the job for eight years, 14 years is certainly enough for someone like me.”
This is not to imply that Hopf is the latest in a spate of VCs who made millions during the boom times and are quitting now that the going has gotten tough. Instead, he plans to return to SPVC full-time once he comes back from a summer sabbatical.”My plan is to let others handle the firm management work so that I can become an investor again,” he says.
When Hopf sent out the memo regarding his self-imposed demotion, it included a note that he was interested in developing internal candidates for the managing general partner position.
The immediate assumption was that only SPVC professionals with operating experience need apply. After all, Hopf acknowledges that his decision to take the Chuck E. Cheese job was directly influenced by a conversation with Sequoia Capital founder Don Valentine during which Valentine said people who have never filled out a payroll are unqualified to become decent venture capitalists. Early SPVC hires like former ADC Communications CEO Rick Boswell seemed to bear out this philosophy.
Hopf, however, moderated his thinking following significant reflection over the question of what makes a successful venture capitalist and/or a successful VC firm manager. Rather than getting hung up on age or resumes, he now believes that qualities like sound investment judgment, industry vision and an amenable demeanor are keys to the job.
Hopf and his partners developed a slightly more scientific method to evaluate internal talent. “Over the past 2 1/2 years we’ve put everybody here through psychological and personality testing for as much as 20 hours each,” Hopf explains. “We developed a specific personality profile for the managing general partner position… a template with 66 different personality characteristics.”
Also important was Hopf’s suggestion that the firm would benefit from naming a pair of managing general partners instead of sticking with the existing monarchical structure. This way, the firm leaders would be able to better balance managerial responsibilities while still being active venture capitalists.
Since founding SPVC in 1988, Hopf had steadily seen his time consumed by non-investing activities, especially when it came to working with the parent insurance company. “When you only have one client who’s committed $1.3 billion, you had better pay attention to them,” he says.
Such work became increasingly burdensome last year when St. Paul Fire & Marine Co. went through its own management shake-up, around which time SPVC hired a chief operating officer named Mary Jeffries to lighten a bit of the management load. Hopf estimates that by the time he stepped down in March, Jeffries was handling about 25% of his non-investing activities.
After all of its deliberation, SPVC chose Zenas Hutcheson and Dave Stassen as its managing general partners. (They apparently don’t like to be referred to as “co-MGPs”.)
Hutcheson, 48, is primarily known for building up the firm’s telecommunications practice. Prior to his arrival in early 1998, telecom comprised only around 10% to 15% of the firm’s direct investment portfolio. (SPVC also invests in other VC funds.) Today, however, that number hovers around 40%, thanks to Hutcheson and telecom pros he’s brought into the SPVC fold, like Bill Cadogan, Rod Randall, Staffan Ericcson, Tom Rowbotham and Raj Alur.
Hutcheson is also credited with building up the firm’s Westborough, Mass.-based shop, despite technically being based in the Minneapolis home office.
Stassen, on the other hand, is a health care investor currently on his second tour of duty with SPVC. He originally joined the firm as its third partner after a stint with Upper Lake Growth Management, but he soon left to run a medical device company named Spine-Tech. He returned to SPVC in 2000 after Spine-Tech was acquired for about $620 million by Sulza Medical in 1998.
As for Hopf, he plans to stick around a few more months to keep aiding in the transition. After that, he’ll take his annual summer sabbatical, during which time he’ll concentrate on finishing a series of children’s books that he began last summer but never got a chance to finish. The books – five of them at last count – are Hopf’s attempt to counter what he sees as a relatively vapid market. The father of four children – two of who are less than 10 years of age – says “most children’s books are either too cartoon-like or very highbrow. His series “addresses values, while also being interesting and humorous,” he explains.
Hopf would like his books to be similar to the movie “Shrek,” in the sense that it managed to work a message of beauty being skin deep amid a flurry of flatulence jokes and an adventure storyline. He has already had preliminary talks with publishers, but realizes that his tomes still need a good deal of polishing before being available at the local Barnes & Noble.
Once he returns to SPVC, Hopf hopes to begin paying more attention to his five portfolio companies: OnlineLearning.net, Cool Cuts 4 Kids, Garden Fresh Restaurant Corp., also known as Souplantation (Nasdaq: LTUS), N.E.W. Customer Service Cos. and Select Comfort Corp. (Nasdaq: SCSS). He’ll also get more involved in new investments in the consumer, retailing and education markets.
The key to his investing strategy is to never forget the lessons he learned from the bankruptcy of his theme restaurant business. Specifically, he will continue to refrain from momentum investing.
“We certainly dodged a lot of bullets between 1998 and 2000,” Hopf says. “We also probably did not get as many benefits from chasing the wave as others did, but we are comfortable being the antithesis of momentum investors.”
This isn’t to say, however, that Hopf has completely closed the door on his Chuck E. Cheese past. In early March, he bought himself an original Ms. Pac-Man machine. If it distracts him too much from his book project, his kids may have to get tough and take away his tokens.