Success, it seems, is all in the eye of the beholder.
For most of us, Silver Lake Partners would fit the bill. Since being founded in 1999, the tech-focused private equity firm has amassed $14 billion in assets under management, opened offices around the globe, produced strong returns for investors and diversified its investment strategy. For Silver Lake co-founder Roger McNamee, however, Silver Lake is about opportunity lost.
McNamee was one of several contributors to something called “The Failure Chronicles,” a series of first-person articles included in next month’s issue of Harvard Business Review.
At first glance, I assumed that McNamee would be detailing the struggles of Elevation Partners, the firm he launched after breaking up with Silver Lake in 2003. Kind of a harsh analysis — Elevation actually may produce decent returns thanks to a well-timed Facebook investment — but clearly Elevation hasn’t lived up to its extraordinary hype (and the chances of it raising another fund are remote).
So imagine my surprise when I actually read the piece, and realized that McNamee was talking about Silver Lake. His lead:
Nearly 30 years of investing in technology companies has exposed me to more kinds of failure than I ever knew existed. For me, the most frustrating is when a company (or person) fails to reach full potential. EBay could have been 10 times as big and 100 times as important as it is today, but shortsighted business plans relegated the company to a very profitable niche.
I was part of a failure like that. In 1997, I realized that the internet bubble was going to end badly for technology investors. I decided to create a new kind of fund that might withstand a market collapse. I began the project, which became Silver Lake Partners, in collaboration with a close friend from the investment banking world. Like eBay, Silver Lake is a very successful firm. And like eBay, we blew our opportunity to change the world.
To be sure, McNamee is sure to slip in that Silver Lake “is a very successful firm.” But his larger critique is that Silver Lake strayed from its founding principles, and became just another giant leveraged buyout firm. It’s an unforgivable sin to McNamee, and is reflective of the schism that caused his departure in the first place.
McNamee is basically a next-generation version of Ted Forstmann, in that he abhors financial engineering. Instead, McNamee wants his investments to succeed due to operational improvements, even if that means smaller funds, larger staffs and longer time horizons. He writes:
“[Silver Lake] made trailblazing investments, including the buyout of Seagate (STX), the market leader in the hard-drive business, and a large commitment to the online brokerage firm Datek. After our investment, Seagate and Datek embarked on transformational product strategies that led to exceptional financial returns. Their success made Silver Lake a major institution overnight.”
McNamee certainly is correct that both Seagate and Datek made major changes while under Silver Lake’s ownership. But he neglects to mention that Seagate was acquired using a hearty amount of leveraged financing ($1.3 billion of the $2.3 billion deal was financed via junk bonds). He also seems to have little patience for evolving strategies — or pivoting, in the current lingo — even though his current firm has done deals that clearly are outside of its original investment strategy (such as buying a minority stake in Forbes Media).
It certainly is possible that Silver Lake may have been something very different were it to have followed McNamee’s advice over that of its other partners. But there is no guarantee that the result would have been any more, or less, successful. In fact, it might have been more of a failure.
