Few people have had as long a career in the venture business as Alan Patricof, who started his first fund in 1970 and raised his most recent last year. So it makes sense that the Greycroft Partners founder would have some advice for aspiring VCs and entrepreneurs.
Patricof shared some of his thoughts on the venture business and current startup environment at this week’s Venture Alpha East conference in New York, where he received a lifetime achievement award from Venture Capital Journal for his pioneering career.
On how to identify the most promising founders
If you can back a team of people who have worked together before in a similar industry and there’s a clear leader who left and his or her compatriots followed, then that’s a pretty good indicator of success, Patricof said. By the same token, if someone has not convinced any of his or her colleagues to join the venture, that’s a negative indicator.
On whether limited partners are warming up to venture
When fundraising during the depths of the credit crisis in 2009, Patricof said, Greycroft partners had to go through more than 150 meetings to close the firm’s second fund. For the third fund, a $175 million vehicle which closed last year, it took a fraction of the time, and Greycroft had to turn prospective LPs away.
The dilemma right now, Patricof said, is most institutions are big and they have to invest large amounts of money. That can be challenging for a small fund, such as Greycroft, which isn’t set up to take $50 million from a single investor. It also drives the growth of mega-VC funds, of which Patricof is no fan. Because bigger funds are forced to seek out bigger investments to move the needle on returns, he said, their returns tend to not be as good as for smaller, more nimble VCs.
On exiting by IPO vs. acquisition
To date, Greycroft has not had a single portfolio company exit by IPO, though it has had 23 trade sales. Patricof is not against going public. But in recent years, he said, the IPO market has not been receptive to smaller offerings. That seems to be changing this year, he added, with the market opening up to smaller, not-yet-profitable companies that have strong growth trajectories, proprietary technologies and are leaders in their spaces.
On Greycroft’s latest exit, Maker Studios
Greycroft invested $5 million in Maker Studios, one of YouTube’s largest networks, which sold to Disney this week for $500 million. At the time of the sale, the firm had a 15% stake, which translates into a 15X return.
On why he’s not investing in Bitcoin startups
“I guess that’s where age shows,” said, Patricof, who is 79. “I always learned that money is a store of value and it had to have something behind it, even it that was just the full faith and credit of the United States government.”
Photo: Alan Patricof speaks at PartnerConnect East 2014. Photographed by Rob Paul for Thomson Reuters. All rights reserved.