TOM CONWAY
Pete Musser, founder and former CEO of Safeguard Scientifics and legendary venture capitalist, presides over The Musser Group, waxes poetic about the past, and navigates the newest bubble while making the savvy (and profitable) investments that made him famous.
The football caught my eye before anything else. It sits encased in glass across from Pete Musser’s office and shines as if lit by spotlights. It was given to him by friend and business partner Dick Vermeil, a token from his Super Bowl victory as coach of the St. Louis Rams. Musser’s road from a 20-something start up venture capitalist scrounging for dollars to a man worthy of gifts from Super Bowl champions is a long and winding one. His career started modestly with check printers and writing systems in the 1950s and grew to reach the epicenter of the 90s Internet explosion. He claims the start of his success was comprised of equal parts bravery and brains, specifically his decision to quit his job as a broker and found Safeguard Scientifics in 1953. The key to flourishing, claims Musser, is the gall to make risky plays and the charm to convince others to open their checkbooks and hop on board. Like the football in his lobby, these traits are preserved. Though not in glass, but inside this brisk business leader.
In a lightweight crested polo and khakis that resembled golfing attire, Musser sat twelve o’clock, to my three o’clock at the richly stained circular wooden table in his conference room’s center. Behind him stands a wall covered in the trademark images of businesses he financed and built—a collage of accolades, pictures, and plaques. There’s a photo of him on stage with Microsoft co-founder Bill Gates and one of the former Nutrisystem CEO Michael Hagan, Forbes’ 2006 entrepreneur of the year, whom Musser worked with to revive the fledgling weight loss company. A standout photo features three prostitutes being hauled into a police precinct using a magazine, featuring Musser’s photo on the cover, to hide their faces. Yes, he has a sense a humor about things. Most of the pictures containing Mr. Musser are group shots, in which he is surrounded by his team, with the notable exceptions being those of him and his dog. This speaks to the nature of the man, which brings us back to his circular conference room table.
“Everybody loves to come sit around a round table, everybody feels equal. No one is superior at a round table,” says Musser. “I always try to be informal cause then people relax and they’re informal. We kept everyone on the same field, to encourage communication. That’s the way we ran it. We didn’t go about giving orders rather than suggestions. We never had boss-subordinate relationships.”
At Safeguard, Musser helped pioneer the incubation system of investment. The practice housed start ups on the company’s campus to take advantage of their facilities and to be within earshot of, “suggestions,” from Musser and his team. The practice led to enormous growth and is now used by giants such as Google Ventures regularly. However, incubation is by definition subordinate. The somewhat radical decision to work next to young businessmen and women rather than over their shoulders not only proves Musser’s own humility, but gave birth to a lasting business model. Technology companies lined up.
Despite forays into fields such as manufacturing and real estate, it has always been technology that powered Musser’s earnings. His first investment was in a Tupelo, Mississippi cable company. The man behind it, Milton Shapp, ascended to the post of Governor in Pennsylvania just under 20 years later. “Shapp was running cable lines from TV towers, catching signals on mountain tops, to the valleys below,” explains Mr. Musser. “They were getting 12 channels for $6.50 a month. They loved us in Tupelo.” Six years later, Musser convinced a man named Ralph Roberts to get involved in the cable business and sold his system in Tupelo to him for four times their initial investment. Roberts went on to found cable and entertainment provider Comcast then served as their CEO for 43 years. “So it’s fair to say, we (Musser and his partner) started Comcast. We built that skyscraper,” quips Musser, referring to the 51 story gem of Philadelphia’s skyline that houses the largest cable television provider in the United States. Twenty-five years and several investments later, Musser moved from the established cable business to the forefront of another burgeoning industry.
By the late 70s, computers had entered the public consciousness in full force. Young companies such as Apple and Microsoft along with established ones such as IBM and Hewlett-Packard were moving toward making computers mainstream. Novell, a hardware company, stood firmly on the fringe of the industry. Their foray into microcomputers ended quickly when IBM threw its hat in the ring. Musser and his board, who owned a large stake in Novell, contemplated dumping shares for fear of competition with the tech giant. Against the board’s suggestion, Musser believed in software they had been developing on Brigham Young University’s campus and decided to take the company in that direction to avoid a squashing at IBM’s hands. Today, Novell carries assets worth over a billion dollars and produces some of our most essential software—providing 70% of network software in the United States at its peak according to Musser.
The 90s brought the Internet boom and an economic bubble of massive proportions. Musser, like anyone dealing in technology could not help but get caught up in it. Venture capital peaked as an industry in 1999 with over $99 billion invested, much of it in dotcoms. The following year it was down to $38 billion and dwindled to $18 billion in 2003. Musser faced departure from Safeguard and a large decrease in wealth. Like many others, he was injured by the downturn, but unlike others, he refused to be a casualty of it.
The current economy may be on the precipice of a similar bubble burst. This new frenzy, fueled by social media initial public offerings (IPO), is being met a little more tentatively than that of the 90s, but there are still scores of investors diving headfirst into the pool. Valuations on these companies are soaring. Facebook’s may be in the neighborhood of 100 billion, while business-oriented social-site LinkedIn just hit the market in an IPO that was one of the hottest in a decade and, at its peak, traded at over $100 a share. Groupon, Pandora Radio, and Zynga are among others chomping at the bit for investors.
Musser’s own investments steer clear of these volatile ventures but he remains engaged in them mentally and, like others, is leery of the latest stock gold rush. “It has all the aspects of a bubble and all the similarities to the 90s. Everybody said get on the Internet and millions of eyes will see you and the price went up based on millions of eyes.” Social network’s valuations to, are based on the eyes of the hundreds of millions that depend on them for information and connections daily. That should translate into dollars, but current prices are running far ahead of revenues.
“They have potential but they don’t have earnings. It’s not essential that they all will materialize to make money. They have the hits. That’s obvious, but how they are going to make money isn’t so obvious. The big gamble is whether they’ll figure out a way to capitalize on their page hits that won’t lower their amount of hits,” says Musser about all the social networking type sites this side of Facebook, which appears to be the only one he’d personally bet on. All others teeter on the second tier, hoping to make the jump to the certainty the networking powerhouse they emulate has attained. Musser’s forecast is clear, “I can tell you, all 10 or so of those won’t be successful. I’ll tell you that.”
Numbers back up what Musser knows from experience. LinkedIn has a current market value of $9-10 billion despite only $243 million in revenue last year. Facebook’s gaming partner Zynga has garnered a valuation of approximately $20 billion with only $597 million brought in. Groupon projects a similar value with revenue at $713 million. Even the sure thing, Facebook, features a valuation that is fast approaching $90 billion ahead of its revenue.
But it’s not all dark skies when it comes to tech and Internet companies from Musser’s point of view. He stands in awe of pillars Apple and Google, which have developed into genuine blue chip companies. “Look at Google, that’s just about the most outstanding thing you can think of, what they’ve done and Apple, how much ingenuity can you find in one place?” he wonders. Nearly encyclopedic, he recalls details from Apple’s history as if it were his own company.
“They were never as successful as they could have been as a software company, never had the impact of Microsoft. He (Steve Jobs) lost a struggle down there in the mid-80s and left, but he said they should open up their software like Microsoft did and they said no. Theirs was the best, it was always the best but they never made that impact in software. Then they had a surge of creativity ten years later. Those Apple stores too are just incredible,” Musser says.
His respect for the late business magnate behind it all is evident, “I think he (Jobs) and Thomas Edison are the two most creative inventors in American history,” says Musser. “It’s an absolute tragedy that he died at 56. But I’ll tell you what, he left that company in the hands of some extremely capable management and they’re going to continue to flourish.”
One could play six degrees of separation between Musser and nearly any figure in the arenas of technology or venture capital—Jobs is no different. Eric Schmidt, the former CEO and chairman of the board at Novell went on to work with Jobs as a member of the Apple board of directors. He held the position for three years, while simultaneously serving as chief executive of Google. The 136th richest person in the world according to Forbes, Schmidt stands as one of the top tech executives of the Internet era and one of the many branches on the Pete Musser tree.
Today, Musser is more than a stone’s throw away from companies such as Apple or Novell, but true to form, he seems to have gotten in early on an idea that may go from novel to necessary very quickly. The thought is to embed auto insurance in the cost of a new vehicle and create a seamless purchase for customers. MetLife and General Motors (GM) joined to put the program into practice and launched it in early July in Oregon and Washington. “You show your license then buy the car and you’re insured,” Musser explains as his eyes light up. “We think it’s exciting because it’s so easy for the customer.”Both Musser and GM hope this can be a catalyst to a strong finish this year. “Pretty soon you’re going to see Snoopy pictures on the hoods of Buicks,” says Musser jokingly, referring to MetLife’s mascot and one of GM’s top brands.
The program, dubbed “In the Car” is off to a good start in the two states but Musser admits that everyone is still, “holding their breath.” Then his glass-half-full demeanor raises it head again, “the reaction has been wonderful and I don’t see why that should change.”
It is that optimism along with a short memory that keeps Musser sane after nearly 60 years of sweating out the market. All that time allows him to see the big picture that every businessperson is aware of but sometimes loses sight of—the market will bounce back and there is always another trend. “We’ve seen this happen before. There was a drug cycle, electronics cycle, oil style, then the Internet hit, and now its social networks. It goes on four or five years and it’s over,” he points out.
These days he remains unflappable and appears unshaken, fortified by the many events that define his legacy. His words come out slowly but carry a conviction that perks up your ears. Musser possesses a distinct pride in his storied past—he took me through the pictures and people on his wall with a bright smile on his face. Chief among the things he considers part of his legacy are the people he has groomed over the years that now populate some of the region’s most significant companies. There are some things about the past, however, he just can’t recall—when asked if he had any opportunities he regretting missing out on he paused for a second, rolled his eyes up toward the ceiling then ran his hand through his wispy brown hair before, with a look of confusion on his face as if no one had ever posed that question to him before, he replied, “Ya know, I can’t think of one.” He humbly points out that he’s sure there were boats missed but dwelling on them is not good business.
What becomes clear is, while the economy flounders, the United States can benefit from having people such as Pete Musser still in the game. Despite being 85 and wildly successful, it is not Musser’s past which garners him investments these days but his comprehension of today’s market. Unlike his 1953, counterpart this Pete Musser doesn’t just run on charm, though he still has plenty of that.
ABOUT THE AUTHOR
Tom Conway is a writer and editor for Collier’s. He can be reached at t.conway@jtemultimedia.com
