Looking Shrewd
One of the things I have learned in doing business in the Middle East is that shrewdness is a highly prized attribute. I have worked for and with Israelis. I have worked with and for Saudis. I have worked for (decidedly not with) a big-time Uzbek. I heard it said by one of these groups and maybe all of them that the greatest praise you can give a man is to tell him his son is more shrewd than he is. This seems to embody all the parental and male paternalistic pride while specifying the specific trait which somehow connotes wisdom, intelligence, toughness, success and dominance. What’s not to like about any of that if you are a man and a father who wants his son to be king of the hill. And who doesn’t want that for their child?
I have been a finance guy for forty-five years. I believe that was far less about making money than it was about finding a productive avenue for my natural math skills, skills that went to meaningful ability in mathematical manipulation so long as it stayed somewhat rooted in the tangible world rather than the esoterica of higher mathematics. I will define higher math as calculus and above because it has always been the barrier that I found differentiated people who could work with math in theory rather than just practice. I have no trouble declaring that I hit that wall pretty firmly in college and while I passed my calculus courses, I always came away feeling somewhat befuddled. It was perhaps the first time I found and was forced to acknowledge the natural limits of my mind. I shut down for business somewhere in the middle of calculus. But financial math always made sense to me.
For much of the forty-five years I spent on Wall Street, rising through the ranks and attaining reasonably high levels in three separate firms, I always encountered people who found me to be an anomaly in the business. The way that got expressed to me varied, but it mostly took the form of suggesting that I was miscast in the role. One very interesting guy introduced me once as a wood sprite trapped in the body of a banker. I wasn’t sure what to make of that, but I liked the sound of it. Others would just get down to brass tacks and say that I was too nice to be on Wall Street. That was their way of saying that I was not cut from the same say-anything, do-anything get the deal done at all costs and with the lion’s share in my own pocket approach to life. I suppose if they had to distill it down to a word, they might have said that I was not shrewd enough for Wall Street.
Funny thing was that I continued to be who I was and yet I continued to rise in the ranks and succeed by the standards that Wall Street set for itself, money, position and power. Let’s be a bit careful here. I never succeeded like a Michael Milken or a John Paulson, or even a Lloyd Blankfein. But I did pretty well and I made it to the upper ranks in three firms and was probably in the top 1% though that’s a hard statistic to ever prove. It has often made me wonder if I too would have a hard time at Heaven’s Gate getting through the eye of the needle. I thought I was mostly a good man, but was I kidding myself?
I got into a deal once with a dear friend. It was a private equity deal and I was the investor to his entrepreneurship effort. I started giving him a chunk of money as his friend and getting what amounted to 17% of his venture, a valuation that he set and I agreed to. Within a year he had made enough progress to seek funding from an organized seed venture capital company. I had formed such a VC with three friends, and he pitched us to invest. I recused myself and left it to my partners to decide. They decided they liked it and wanted to put in a very large chunk of money for a 1/3 interest in the company. He agreed to their terms and I was asked by my partners to become the Chairman of the company and the lead partner. I reminded them that I was an investor at a personal level and they said that I must sell that interest to the VC firm. I suggested that it was worth more than what I had invested and they wouldn’t hear of it and said I had to sell it at cost. I was an agreeable sort and a good partner, so I agreed. When we had documented all the arrangements of making the new investment and transferring my interest to the fund, we did what finance guys always do, we published a capitalization table.
And there it was, with the two stakes combined, our VC fund owned 50.3% of the company. When my friend saw that, he immediately accused me of hoodwinking him by virtue of my years in finance (he had spent his time as a marketing guy). He was sure I had tricked him into us having a majority stake in the company. Even my partners were surprised where that left us since it was totally a coincidence the way the numbers added up. When the company failed and I had to shut it down, my friend ceased being my friend, not because he had lost our money (that is the nature of the game) but because he thought for sure I had rigged the game in our favor. Nothing could have been further from the truth. He was attributing shrewdness to me where no guile had existed.
I am suddenly faced with another situation now that is quickly evolving. It again involves an investment made into a venture company, this time by the venture company that I am running. I recommended the investment for noble and strategic reasons. Clearly I thought it would also be a good investment, but mostly I wanted a strategic alliance with the other company that would be hard to break apart. The deal involved some options which they were glad to give us at the time and those options once again involved controlling ownership potential. It was not a fancy deal. In fact, we worked hard to simplify it as we went along and thought we had done so. Now facts and circumstances have changed for both companies and that deal is looking like the shrewdest deal ever. And once again it looks to the casual observer that the finance expert (me) got the better of the scientific guys (them). The chips turn out to be all in front of me, not that I can’t blow us all up if I handle this wrong at this point.
Once again, the truth is far from the perception. I think we did a fair, reasonable and rational deal, but in no way did we contemplate this outcome (even as an outlier) and structure to capture the advantage it gives us. I have lots to figure out about this all now, but one thing I clearly take away and that is that I’ll bet most of the seemingly screwed deals are really just deals where somebody got lucky. I have never been unable to admit the role of luck in my success, and to quote the 80’s band Whitesnake (for whom my wife worked back then), “Here I go again on my own, going down the only road I’ve ever known…”. Perhaps someone should have said to my father, “Your son is twice as lucky as you are.”