An 82-Year-Old VC Makes a Splash With Young Startups
The lobby of Manhattan’s Crosby Street Hotel, with its industrial chic and just-so designer furniture, is very 2017. Alan Patricof, with his loose-fitting suits and mop of gray hair, is very 1967. But on a cloudy recent morning, as the high-ceilinged room buzzes with bankers on the hunt for media deals at a conference, Patricof fits right in.
As he wends his way through the hotel restaurant, the 82-year-old exchanges warm hellos and swaps media gossip with well-heeled movers and shakers. People who don’t know him notice him; people who do treat him like The Man. And after he joins me at a small table and orders tea, Patricof drops a hint about just how long he’s enjoyed that status. “New York magazine is celebrating its 50th anniversary next week,” he points out. “I’ll be one of two people attending who was there when it opened.”
Patricof’s investment in New York, which helped turn a small-circulation pub into one of the most important media voices in art and politics, was one of his very first, and it showed the acumen that has made him a legend in venture capital circles. Since then he’s helped build hundreds of companies, including the likes of Apple (AAPL) and AOL—as one of the country’s first VCs and then as cofounder of Apax Partners, one of the world’s biggest private equity firms.
In 2006, at age 71, he sought something both new and familiar, collaborating with a younger generation of VCs as cofounder of a new firm, Greycroft Partners. After nearly 12 years there, studded with successful investments in startups like payment platform Venmo, entertainment firm Maker Studios, and men’s styling service Trunk Club, the patriarch shows few signs of slowing down. He’s first into the office every morning, and he recently made his first bet on a Bitcoin company. As our interview wraps up, he’s in a rush to rejoin the confab in the lobby to parlay with Cheddar, a fast-rising web TV service. “Alan in his eighties is younger than everyone I know,” says Mike Lazerow, founder of Buddy Media, another of Greycroft’s successful exits.
Patricof has nothing left to prove—but he and his (chronologically) younger partners are still trying to accomplish something significant. They’re striving to show that a boutique VC firm can add value for investors and founders in an era of multibillion-dollar super-startups. They’re demonstrating how different generations can learn from each other and help a company evolve and stay nimble. And at a time of rapid change in the venture business, the hope is that, when Patricof hangs it up, they’ll prove that this famous builder of companies has constructed his own firm to flourish without him.
In its offices high above Grand Central Terminal, Greycroft’s New York team begins a Monday morning ritual: speed-vetting a list of young companies that want money. Patricof is there, with other Greycroft partners, including Ellie Wheeler, 35, and Ian Sigalow, 38. David Stern, the former NBA commissioner who has a standing invitation to join the meeting, is one of the few other gray-hairs present.
Greycroft’s bread and butter is early-stage companies, typically in “seed” or “Series A” rounds, meaning that most firms on today’s list have a handful of employees, big dreams, and little in the way of profits. (The firm also operates two growth funds for later-stage investments.) The team gets right to it, picking apart the roster like fussy chefs shopping for just the right ingredients. After casting off a few candidates, they alight on one that gives customers a new way to order lunch online. Several in the room see promise, pointing to the firm’s rapid growth and high-margin business model. But Wheeler tosses on some cold water. “This just doesn’t seem like it’ll change our world,” she says. “I might be a user but not an investor.”
Next on the list is a virtual reality firm, but Patricof shoots it down because the company has been slow to produce people who can vouch for it. (A lack of references from other founders is a deal breaker for Greycroft.) But the table becomes outright enthusiastic about a startup that bills itself as the “Axios of cyber.” It’s a nod to Axios, a new media venture that counts Greycroft as an investor and which in mid-November raised $20 million. “This is a good thing,” says Patricof. He’s a fan of Axios because it offers a high-quality product whose owners hope to someday put it behind expensive paywalls: “We had companies that wanted to be the ‘Airbnb of this,’ and now they want to be the ‘Axios of that.’ ” Wheeler likes the cybersecurity firm too, putting it on a list for a meeting.
So it goes as the Greycroft gang whips through dozens of companies in under an hour. For the handful that get the table’s blessing, this is only the beginning. The standouts must survive scrutiny from the firm’s Los Angeles partners, which also have an initial screening roster of their own. Startups that get a thumbs-up from both coasts may get invited to make a formal presentation. Then they’ll run through Greycroft’s “pattern-matching process,” during which quants sometimes employ dark statistical arts to see if a company’s team and trajectory match up with previous successful startups.
Only after this rigmarole will Greycroft open its purse and bless the startup with an investment of anywhere up to $30 million, made in federation with other VC firms. The process may sound obsessive. But in venture capital, which produces hundreds of failures and fizzle-outs for every Facebook (FB), Greycroft needs every edge it can get before it lavishes a firm with something just as valuable as its money—a prodigious amount of attention and networking.
A FIVE-DECADE HIT PARADE
Alan Patricof, one of the country’s first venture capitalists, has been a deft trend-spotter through a half-century of technological change. Here are some of his more notable bets.
New York Magazine
In a year that saw the launch of Rolling Stone and the musical Hair—Patricof invested in a pioneer of “new journalism.” New York would go on to become one of the most important voices in American arts and politics; Patricof exited in 1977.
Apple and AOL
By the late 1970s, Patricof was steering a global private equity firm, Apax Partners. But he still left his stamp on Silicon Valley as an early-stage funder. He was a second-round investor in a startup called Apple (five years before the release of the first Mac). He also bet on Steve Case’s Quantum Computer Services—which soon changed its name to AOL.
Apax becomes a force to be reckoned with in leveraged buyouts, especially in Europe. The firm lands the 2001 purchase of Yellow Pages and the 2005 buyout of Danish phone company TDC for $15.3 billion—the biggest LBO in European history at the time.
Patricof returns to early-stage investing with his new firm, Greycroft Partners. New media remains a passion: Patricof is part of a $5 million first round into the Huffington Post—which is bought six years later by another of his early investments, AOL, for $315 million.
Venmo and more
With the help of a new generation of protégés, Patricof’s Greycroft becomes one of the leading VC firms in New York and L.A., where Silicon Valley giants cast less of a shadow. Hot payment app Venmo is one of its best-known early bets (though the firm’s partners kick themselves for selling too soon). But it also scores with film company Maker Studios (sold to Disney) and meal-prep startup Plated (to Albertsons).
Few people have a network with as many branches and nodes on it as Patricof’s. By his own description, he has been a hustling dealmaker since college, when he worked his way through college by selling party favors and neckties to fraternities. The success of his New York investment elevated his stature and eventually led him into private equity at the helm of a firm he founded in the late 1970s, Apax Partners. With funds in the billions to play with, Apax became a global force.
Patricof invested in Apple in 1979—before there was such thing as a Mac—and in a company called Quantum Computer in 1985, before Steve Case changed its name to America Online. His repertoire eventually expanded to include takeovers and leveraged buyouts, including a takeover of a Danish phone company in 2005 that was Europe’s biggest LBO at the time.
But as the deals got larger, Patricof says, the satisfaction he got from them did not. Armies of lawyers got the important work done, and he was no longer spending time with inspiring young founders who built companies from scratch. “I decided to go back to how I started,” he says. “I thought I’d learn from my mistakes … I wanted to go back to being small.”
So he returned to what he loves, which is helping founders get a foothold. His style is remarkably hands-on. Several startup CEOs in Greycroft’s portfolio recount getting calls and emails at all hours from Patricof in his excitement to share an idea. Elizabeth Rossiello, the globe-trotting founder of BitPesa, a firm that uses blockchain technology to help merchants in Africa and Asia lower their money-transfer fees, describes watching her email in-box fill with tidbits about Bitcoin that Patricof had seen in media and finance newsletters.
Rossiello also received regular installments of one of Patricof’s most treasured currencies: advice about building relationships outside her own professional circles. Greycroft holds dozens of networking events every year, including annual “summits” in Los Angeles and at Patricof’s own estate in East Hampton, N.Y., with speakers and guests drawn from the top ranks of tech, media, and politics. (Patricof is a prominent Democratic rainmaker, and his office is adorned with personal photos of the Clintons and Obamas, whom he knows well.)
Greycroft gets a competitive edge by being one of relatively few prominent VC firms not based in Silicon Valley, where juggernauts like Sequoia Capital and Andreessen Horowitz define the scene. In 2006, when Patricof launched Greycroft in New York, few took the city seriously as an ecosystem for tech talent. Patricof credits former mayor Michael Bloomberg with helping to change this perception and paving the way for Greycroft and a handful of other New York City firms, including the now high-profile Union Square Ventures.
But other VCs pay similar homage to Patricof. “It’s possible New York would not have a tech scene without Alan,” says Bradley Tusk, a chief of staff during the Bloomberg administration who now runs his own venture firm. “Greycroft was welcoming and generous to us when they didn’t have to be.” Brad Feld, a prominent investor who now runs Colorado-based Foundry Group, describes Patricof as “one of the foundational members of the VC universe.”
Patricof’s desire to stay small has kept Greycroft focused on early-stage investments. It raises less money than many other VC firms—it currently oversees a total of just under $1.1 billion. This approach has meant that the mega-unicorns that bring VCs the most attention—giants like Uber or Airbnb—have been absent from Greycroft’s stable.
The firm, like most VC operations, is reticent about publicly discussing its returns. But outside data, subsequently confirmed by Ian Sigalow, shows healthy results: According to research firm Pitchbook, the internal rate of return (IRR), a measure of performance in private companies, for Greycroft’s first two funds hovered around 19.5% annually from 2015 through 2017, squarely in the midrange for VC firms but about twice the annualized return of the S&P 500 over that stretch.
Sigalow adds that the final IRR figures will be higher if and when other portfolio companies enjoy a profitable exit. “By the end of 2017, Greycroft will have generated nearly $400 million of realized gains for LPs [limited partners] from 30 profitable exits,” he told Fortune by email.
Greycroft’s performance, of course, encompasses many misses and a few big hits. Its greatest “exits” so far include the $800 million sale of Buddy Media, a social media management platform, to Salesforce in 2012, as well as Disney’s acquisition of Maker Studios for $675 million in 2014. Greycroft notched another notable exit this September when grocery giant Albertsons bought meal-preparation startup Plated for $300 million.
There’s also no shortage of lost opportunities that partners rue. “We’ve lost more money by not doing stuff,” says Sigalow. “Not investing in a Series A in Twitter cost us a billion.” Sigalow counts selling Venmo too soon as one the firm’s bigger missteps. The ubiquitous payment app, which is now owned by PayPal and could easily fetch over $1 billion, earned Greycroft just $27 million when it sold in 2013 to the merchant banking service Braintree. (One consolation for Greycroft: It also held a position in Braintree, which eBay bought soon after for a reported $800 million.)
At Baltaire, a swank restaurant in the Brentwood section of Los Angeles, the founders of more than a dozen startups are gathered in a private room, networking on Greycroft’s dime. Over dinner and bottles of Napa Valley merlot, they swap stories about building companies. At least a third are women—an unusually high ratio in the often hyper-male VC world. The startups span a diverse range of businesses—from baby cradles to data science—and they’re all getting attention from Greycroft’s network of investors, lawyers, and all-around fixers. If one of the founders needs help with a sales or hiring issue, or is seeking a crucial introduction, chances are good someone at the table will be able to lend a hand.
Founding partner Dana Settle calls Greycroft’s web of connections its “secret sauce.” But the Baltaire dinner also testifies to Settle’s own influence. A poised fortysomething who often flies to New York and back on the same day, Settle is a master networker. She earned money as a girl selling shellfish from the beaches near her home in the Pacific Northwest, and after college she sold spectrum in India for the telecom tycoon Craig McCaw. Since joining Greycroft in 2007, Settle has engineered some of the firm’s most successful bets, including Maker Studios and Trunk Club, which was acquired by Nordstrom (JWN) in 2014 for $350 million.
She has also influenced Patricof, her cofounder and mentor, in ways that have expanded Greycroft’s horizons. Patricof says he once thought of L.A. as a “wasteland” for VC investing. When he first hired Settle, he initially insisted she move to New York. She declined, and Patricof realized it was indeed possible to build a bicoastal firm. Now Greycroft has a strong presence in two cities where big Silicon Valley firms like Sequoia and Kleiner Perkins are less well established. “Alan, Ian, and Dana have access to contacts that other firms don’t,” says Brian Spaly, founder of Trunk Club and clothing chain Bonobos.
In his autobiography, Valley Boy, the late Tom Perkins describes the venture capital landscape at the time he and partner Eugene Kleiner started their iconic, eponymous VC firm in the early 1970s. “The total pool of venture capital at the time … has been estimated to have been much less than $100 million throughout the United States, and all the practitioners could easily be assembled into one moderately sized room.”
It’s an understatement to say things are different today. In 2016 alone, venture capitalists invested a near-record $69.1 billion. There are hundreds of VC firms in the U.S., and newer players, including foreign governments, big tech companies, and mutual funds, are jockeying to join the scene. The upshot is, it has become much harder to get an early bite of the next Facebook or Uber, especially as VC firms known for investing in later-stage startups move their money into younger companies. “All of the later-stage investors are moving earlier because they think their perch is overheated,” explains Wheeler, the Greycroft partner. These same forces also pressure some founders to seek more money sooner, to prove that they’re players.
In practice, these trends mean that Series A funding rounds have ballooned from $3 million or so to as much as $20 million, and that “seed” rounds that once leveled off in the hundreds of thousands now hit the millions. That creates problems for smaller firms like Greycroft, which don’t command the resources that imbue a startup with star status. “There are these massive West Coast firms that want huge returns. The vast majority of other firms won’t be able to compete,” says Lazerow of Buddy Media.
Still, Lazerow and others familiar with Greycroft, including investors and CEOs of its portfolio companies, think the firm will hang in by being high-touch, offering connections and coaching, and a reputation as an easy-to-work-with partner. Unlike many VC firm, Greycroft doesn’t insist portfolio companies assign it board seats or name it as the lead investor. The company boasts that it doesn’t block acquisitions to hold out for higher prices, and it encourages partnerships among investors, in what partner Mark Terbeek calls a “federated model.”
Other Greycrofters argue that being small helps the firm steer clear of some of the industry’s abuses. Sigalow says giant funds can create a me-too mentality and pressure to juice results to placate impatient investors. “You have the ability to market an illiquid portfolio a thousand different ways, so it’s very difficult to know if someone’s doing a good job or not until the gains or losses are realized,” he says. In contrast, Greycroft’s straight-shooter reputation has led its limited partner investors, including the Walt Disney Co. (DIS) and Cambridge Associates, to reinvest year after year.
Greycroft also strives for an inclusive, open culture that’s taking on growing importance at a time when venture capital is confronting ugly undercurrents of misogyny and discrimination. The presence and influence of high-ranking women like partners Settle and Wheeler set an important tone. In interviews, female entrepreneurs and journalists spoke highly of Greycroft, and the firm has backed dozens of women founders and CEOs, including BitPesa’s Rossiello and Katherine Power of Clique Media, a fashion media and e-commerce company that now approaches $100 million in revenue.
Patricof says he worked to create an environment where people are encouraged to speak their mind, and where racist or sexist attitudes have no place. “I made a point from the beginning that we don’t talk about each other, and that we don’t tolerate backbiting,” he says. “It’s too corny to say it’s a happy place, but we built a good environment.”
These days, Patricof leads fewer investments than his protégés, Sigalow and Settle, and he brings in smaller returns than they do. The younger partners are clearly thriving under that arrangement. Sigalow says his first experience in venture capital was at a firm where junior people didn’t speak; he recalls watching bad deals where he wanted to object but could not. Patricof has set the opposite tone, encouraging the team to cultivate their own relationships and collaborate, and investors are noticing. “LPs are making a bet as much on Ian and Dana,” says Ashton Newhall of Greenspring, a VC firm that is one of Greycroft’s investors.
In return, Patricof gets a team that keeps him up to speed on finance and technology—helping him remain a player for as long as he chooses. Speaking from behind a desk crowded with mementos, he lays out his philosophy in simple terms: “You have to read. You have to go to conferences. You have to stay relevant.” He also has to cut the interview short: He’s rushing off to attend another startup’s big presentation.
A version of this article appears in the Dec. 15, 2017 issue of Fortune with the headline “An Ageless VC Gets an Act Three.”