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January 6, 1981
Section D, Page
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More than ever, as times get tougher, getting rich quick remains the American dream: an idea that sounds the depths of the national imagination. And nowhere in the American economy is the romance of riches as real as in the world of venture capital, where millions can still be made on investments of several thousand dollars.
Few have fulfilled the dream as completely as Frederick R. Adler, a 55-year-old New York lawyer who is considered one of the two or three most successful individual venture capitalists in the country. By his own account, Fred Adler’s personal net worth during his 13-year career as an investor has risen from little more than $50,000 in 1967 to a sum that is said to transcend $100 million.
Similarly, two funds established by the colorful and outspoken financier two years ago, with his partners, James R. Schwartz and Arthur C. Patterson, have already more than doubled in assets, a track record that few venture capital partnerships can match.
In the process, the Manhattan-born son of a German immigrant, a devotee of Pinot Chardonnay, Southwestern art and 80-hour workweeks, has built an almost legendary reputation as a tough, hard-driving and very smart businessman. Stories about Fred Adler, some of which he tells himself, are part of the folklore of the venture capital business.
”Fred relies on his instincts more than most,” says Ralph T. Linsalata, president of the Lexidata Corporation in Massachusetts, an Adler-backed company. ”Last month I needed more cash, and went to tell Fred. Fifteen minutes later I walked out of his office with a check for $250,000.”
He is equally quick to decide when he does not like a situation. ”Once a well-known investment bank took me to California to look at an electronics company they were in,” he relates. ”The first thing I noticed was a gigantic Mercedes with initialed plates. The president said it was his, leased by the company. Then we went up to his office, which was almost as big as the production area, with a desk about eight feet long. After about an hour I said, ‘Fellows, I’m impressed with your car and your desk, but that’s not the criteria by which I invest.’ They went bankrupt about 18 months later.” A Blunt Approach
Officers of his companies understand that if Mr. Adler, an admitted workaholic, does not think they work hard or well enough, they are gone. If they stay, they have to get used to a certain degree of bluntness.
”Fred once got a guy so mad he ripped a sign off a wall,” Mr. Linsalata said. ”He is very hard on people’s egos.” During a recent interview in his relatively modest offices on Park Avenue, punctuated by frequent phone calls, a visitor heard him tell one caller, ”No wonder you’re regarded as an amateur.” Mr. Adler also has a reputation as a magnet, whose expertise and judgment can pull potential entrepreneurs out of the woodwork.
”An entrepreneur who’s thinking about leaving a company to start a new venture will look to Fred,” says Robert F. Meyerson, president of the Telxon Corporation, an Adler-backed concern in Bath, Ohio. ”I receive calls from guys all the time asking me to introduce them to him.”
Almost 40 percent of the currently invested funds of Adler & Company, the parent organization of the private funds set up in 1978, have gone into new businesses, or so-called start-ups. This compares with an average of about 30 percent for the industry as a whole this year, and only about 12 percent in 1979. (The bulk of the $4.5 billion available to venture capital firms goes to small, already established companies, and for leveraged buy-outs of divisions of larger companies. Only recently, as the growth of venture capital has made attractive, established situations scarcer and more expensive, have start-ups received a significant amount of support). Focus Is on Technology
Mr. Adler says that only a comparatively small proportion of his or others’ venture capital goes into leading edge technologies, which are largely developed by major corporate investors. Nevertheless, the bulk of venture capital has gone to advanced technology companies, with a heavy emphasis on computer equipment, telecommunications, medical innovations and, recently, genetic engineering.
The business, and Mr. Adler’s in particular, is thus clearly based on the marriage of money with innovation, the liaison on which the country’s future productivity depends.
The Data General Corporation, a $650 million computer company based near Boston, was Mr. Adler’s first and biggest hit. He was a founder of and active executive in the company, whose success transmuted his original 1968 investment of $150,000 into $15 million to $20 million.
Mr Adler recounts the best of his deals lovingly, like a jeweler polishing stones. During a recent conversation, the financier, trim despite his fondness for the delicacies of the Four Seasons and The Quilted Giraffe, ticked off some of his favorites.
”I put $178,000 into Advanced Technology Laboratories in December 1977 and sold it to Squibb in February 1980 for $60 million,” he recalled. ”I made about $2.5 million there. I put $14,000 into Acuity Systems, and another $420,000 later. I made $3 million in a weighted investment time of 15 months.” Some Setbacks, Too
All of his judgments have not had the Midas touch, however, as Mr. Adler is not hesitant to admit. The biggest failure was Sanders Technology, a New Hampshire company that went into Chapter 11 last May, only two months after Mr. Adler had put about $800,000 of his own and others’ money in it. Mr. Adler estimates that his funds lost about $260,000 on the deal and he personally lost $250,000.
Mr. Adler operated as a sole investor until he and his partners formed Adler & Company two years ago. The group manages two private funds established with $22 million in capital late in 1978. One, Venad Associates, is a limited partnership formed with money from Citicorp, the Morgan Guaranty Trust Company, Northern Telecom and a number of wealthy individuals, including Mr. Adler.
The second fund is made up of such foreign investors as Les Cables de Lyon, the largest wire and cable manufacturer in Europe; Bank National de Paris, and Arab, Swiss and French investors, including the Dassault family.
This year the Adler group started another $32 million domestic fund with money from pension funds, banks, insurance companies and corporations. And two more foreign funds, with about $40 million in capital, are in the works. To manage all this, the former one-man operation will soon have a second office in San Francisco, several associates and an array of consultants.
According to Mr. Schwartz, the first two funds now have assets in excess of $45 million, even after some distribution of capital back to the investors, who will receive their full gains after eight years. Adler & Company’s share of the gains will be the standard 20 percent, plus annual management fees averaging about 2 percent and expenses.
”But at this stage of my life I don’t do it for the money,” said Mr. Adler, who just sold his Upper East Side apartment for $2.5 million. ”I’m really a dilettante, and this is like going to a university and getting paid for it. I love it.”