This content was created by Tim Draper. This content was uploaded by Tim Draper. This is a YouTube video titled "How a Recession Effects an Investor | Investor and Former 49er Offensive Lineman Harris Barton" (posted 2015-04-08). The excerpt is a first-person account by Harris Barton — a former NFL offensive lineman turned investor — describing how his firm’s nine-year business model (using a $300M credit line from Silicon Valley Bank to cover capital calls from large institutional limited partners) collapsed after the 2008 Lehman Brothers failure. He recounts the bank pulling the line of credit, the resulting operational and reputational damage, efforts to restructure, the bank temporarily taking over and then selling the business to Capital Dynamics, and his difficulties afterwards finding a role and rebuilding. The content is a reflective talk/narrative about the impact of the financial crisis on a niche investment business.
Chapters
So here's where the fun starts. In 2008, the business model that we were using, which had worked for 9 years, was since we were— since, like I told you, we had gone after institutions. We had the government of Singapore was an investor with us. We had Allstate Insurance was an investor with us. We had large endowments in the Middle East that were investors with us. And they always had said, listen, we need a couple things from you. We need, number one, we need to make sure that you're in these funds that you're telling us that you're in. So what we suggest is we suggest you get a line of credit from Silicon Valley Bank. And you kind of— if Hellman Friedman comes out and needs $10 million, we're good for the money. We just got to go through investment committee. Right. You sign a subscription book, you borrow from the bank, pay down, pay the capital call of Hellman Freeman and Sequoia and Greylock. And so that business model worked for 9 years. Well, we had a credit line of about $300 million. We had drawn down $60 million of it to pay forward capital calls. And when Lehman Brothers imploded, as all of you remember, Silicon Valley Bank came running in and said, hey, material adverse change, we're pulling the line of credit. So now you got 2 athletes, you got the world melting, you got 900 limited partners, you've got subscription books signed for 30 private equity partnerships around the globe. And basically Silicon Valley Bank put us out of business. It was a harrowing time. It was one of those fail, fail, fail, fail. It was a great business model. The revenue stream off that business was about $18 million a year. There was nobody at that point in time was willing— we tried to restructure the business by going to the private equity shops who had capital. We had great relationships. We had done nothing wrong. But each one of the private equity shops said, hey, listen, we got so much trouble ourselves. We can't deal with— this is a small problem, but we can't deal with it. So when the bank closed the business, basically they foreclosed on the asset. The bank took the asset in and said, listen, we're going to work it out. We think you got a great business model here. We're going to continue to fund these relationships because we want to be in Greylock. We want to be in Sequoia. We want to be in Draper. We want to be in all these firms, and the only way for us to get into those is to take over your business. So you'll come to work for us, okay? You know, right now you need a job, you need insurance. You come to work for us. Swallow your pride, come work for us. And that's what happened in 2009. Well, we worked for the bank for about 3 months until we realized that the bank had a bigger issue on loans outstanding than we did. They had what they call a $300 million overcommit. So they came back to us and said, listen, again, fail, fail, fail. They said, we can't take the business over. We need you to find a capital partner to sell this business. So now you have a good business out there. You got a business that's got $18 million in cash flow. It's got 900 limited partners. It's very difficult to organically grow it. The bank had already ruined our reputation. There was no way possible that we could raise money. So we went out and found a capital partner. The bank sold the business to a group called Capital Dynamics. And I went to work for Capital Dynamics for about a year. At that point in time, I was miserable. You know, the world was kind of starting to come back a little bit. It's 2009, late 2009. And I was approached I had a lot of friends in the area who all wanted— again, we had been the athletes that had done what nobody else had ever done before, where most athletes have difficult— they're 35 years old. They break their leg. They're out of the game. They can't compete with people like yourselves. All of you guys have been to business schools. You've been to undergraduates. You've started businesses. I can't go to IBM and get a job making $300,000 a year. Because first off, IBM doesn't pay $300,000 a year for starting people. They want to put me in the middle of Iowa to sell computers, and I don't know anything about selling computers. So it's difficult for most athletes to get going. Well, what we had done was we had built a good business. We built it up. We had a great revenue stream. We had hired a bunch of people. Business had been taken away from us, and now we had to start all over again.
