How Steve Young Kicked Off a $50 Billion Second Half

How Steve Young Kicked Off a $50 Billion Second Half

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This is the Steve Young you most likely remember. He was a defining athlete of his generation, building a career out of defying expectations. From being eighth on the BYU depth chart, to a record USFL contract, to sitting behind the great Joe Montana for years, Young ultimately became a Hall of Fame, Super Bowl winning quarterback. Known for his pinpoint passing accuracy, and a penchant for dynamic runs. Trouble, he's gonna be sacked, no, gets away! He runs, gets away again! To the 35, to the 20, to the 15, the ten.

He dives, touchdown 49ers. I played 18 seasons. There's a few that have played more. Tom Brady's now 23, but I got as many as maybe anyone who ever played. And I still did have half of my life, that I wanted to be productive.

And what could you do with another half of a life? Turns out, a lot. Steve Young didn't just make a name and a fortune from his NFL days. Armed with a law degree earned while he was still a player and a front row seat to the tech revolution in Silicon Valley, he's quietly built in an investment firm that's done more than $50 billion in deals over the past two decades. I mean, look, my previous life, it was amazing. You know, throwing Jerry Rice a touch down in front of 80,000 people and winning games.

Like there's nothing like it. It's not 80,000 people watching it, but it feels familiar. And I think that's why there is magic in private equity.

This is the Steve Young many haven't seen: the player turned investor. I recently got to spend a few days trying to keep up with Young, from his offices in Silicon Valley to a Scottsdale golf club and lots of places in between. What started as a straightforward story about an athlete's successful transition to business, turned out to be something much more. The tale of a relentless guy intent on finally marrying his playing and investing careers with an eye toward radically changing both deal making and athletes lives in the process. Hi.

This is tough decision, but I know that I've made the right one, and I really feel it in my heart and I can't deny it. And so I retire from the great game of football today. Lots of players have managed to move from the locker room to the boardroom, taking largely titular roles as advisors and rainmakers to companies or investment firms. Few can say they've committed as much as Steve Young, studying investment memos the same way he studied the Niners playbook.

All right, dental? Pat? You're on your horse. Young's firm, HGGC sits in one of the most fascinating corners of Wall Street, private equity. Once upon a time, that industry was relatively hidden. Now it's one of the most influential engines of the global economy.

It feels like anecdotally, I'm hearing more like, oh, private equity, consolidated, this practice... Talking about acquiring dental practices may not be as captivating as throwing game-winning touchdowns, but it's a fast growing very lucrative business. Collectively, private equity firms control more than $6 trillion in assets, according to McKenzie.

The founders of the biggest firms, guys like Henry Kravis and Steve Schwartzman, they are billionaires many times over. So let's talk for a minute about the basics of private equity. Think of it like buying and selling houses. Basically, PE firms use a mix of cash from investors and money borrowed from banks to buy companies, make them more profitable, and sell them down the line. And just like with houses, some people own them for a few years, take really good care of them, and sell them for a nice profit.

Others, they're more like flippers, who look to do the minimum to make a quick buck. Buyout firms have been rightly criticized over the years for shuttering plants and cutting jobs in pursuit of those massive profits. Especially in recent years, when it comes to medical practices owned by private equity firms. Some practitioners have complained that it forces them to choose between profits and patients.

So as they've grown in stature, so too has the scrutiny, and the sense of responsibility beyond the bottom line. Young and his partners, they're more than cognizant of that historical reputation. And they're aiming to be more nurturing than swashbuckling. They're operating at a smaller scale than the big firms in the so-called middle market, buying companies worth $50 million to $500 million. That's still a pretty big business. HGGC, they've raised four funds, totaling almost $7 billion.

For Steve Young, it's unquestionably one of the most successful second acts of any former athlete. And while Steve may live in the same neighborhood in Silicon Valley as Mark Zuckerberg, you might not know it from his ride. Vans are the best cars on the road.

If you don't have a van and you have kids, and you don't have a van, you're an idiot. Yeah. I mean, how do you not go 14 cup holders and six outlets? I can run everything right here, it's like a rocket ship. 87 was when I lived here. Yeah. I moved here for the first time.

Silicon Valley was kind of up to full speed in ten years. So by 1997. Yeah. So in the last 20 years or so, 25 years even, it's changed in that the biggest companies in the world that weren't here 20 years ago are now here.

Right. But what hasn't changed is Stanford's down the street. Silicon Valley's always been kind of a entrepreneurial place. Back when Steve was playing in the early nineties, the technology boom was really just cranking up, just a few miles from where the 49ers played at Candlestick Park.

We're watching Silicon Valley just explode around us in Santa Clara. ThreeCom, Cisco, name any business, any big business. And I don't know who had the first idea.

I can't give it to anybody, 'cause I don't know who said it. Was like, let's bring 'em in the locker room and we'll tell 'em look, we'll trade some access to the locker room, 'cause that's what we have. Right.

'Cause everyone wanted that, right? The 49ers at that time? Yeah. It'd be like right now who name it? Like the Patriots or the Warriors, the Rams or anyone else. And so we had ten, 15 different companies, $10,000, $15,000 each, we split it all up, and that we just started to come pretty regularly. Those investments and relationships were critical for Steve's own transition into the world of investing, but access to money and deals while playing isn't a guarantee of financial success. Going into private equity was a windy road.

When you're playing, you're one of the best in the world, or best athletes in the world, but you don't have financial literacy. But you have all this money. Yeah. And so there's a big, huge chasm in between your financial literacy and the money that's in the bank. We've watched those stories and the tragic stories. Yeah.

It was a painful moment because when you have somebody coming and trying to take your Rose Bowl rings, your trophies, your cars, your house. Redskin's running back Clinton Portis earning more than $40 million on the gridiron, but life after football led to bankruptcy and almost drove him to murder. Around 15% of NFL players filed for bankruptcy within 25 years of retirement. And while there are extreme examples of failure and success, every player has the same transition. For me, it started when I first got here in '93, 'cause I wasn't drafted. So being, you know, kind of coming in, it was like every day could be my last day.

While Junior Bryant played for ten seasons in the NFL, his transition was sudden. While making a tackle, Junior went airborne, landing with this full weight on his head. Most careers kind of end like mine, unfortunately. It's just the nature of the game. And even though I was doing all that work from the very first day, I still wasn't ready. I kind of really wandered for a few years.

I had ideas of things I wanted to do. But I just didn't take the step, just to kind of move forward. I had the same paralysis. Like what exactly am I gonna do? What am I even qualified to do? Junior would eventually end up working at HGGC with Steve, as well as serve on the board for his foundation Forever Young. Through his foundation Forever Young, Steve is looking to bridge that gap between athletes having a lot of money, and as he describes, financial literacy. He hopes to create a repository of player transition stories.

It's a resource for players by players to give unbiased advice on what comes after sports. An effort to pay forward his success off the field and help others transition from the field to executive suites, like the one his firm has at Levi's Stadium. Right, so this is the suite. This is the firm suite. This is the suite. Playing the game, and what we all been through, players don't realize how useful that can be if you paid attention, They don't realize the resource that they can be. As Junior said, we're all kind of frozen.

And I want 'em to know, by definition of what you've been through, you have something to add to the conversation. I began preparing for my future beyond football probably earlier than I wanted to, because my dad kept pecking at me about the rest of my life. What are you gonna do? What's your plan, what's your plan, what's your plan? And I was like, my plan is to play football. And he is like, that's not a plan.

That motivation pushed Steve to go back to school at the same time he was playing, running from Super Bowls to law school for six years. In 1994, the same year he was league MVP, he also graduated with a law degree from Brigham Young. Without the law degree, I wouldn't have been able to get the opportunity to get into direct investing. Now, did I have the MBA that everyone had out of Harvard? Did I do the four years of consulting or banking? No, but I think I was given the opportunity because I had that in my pocket. I wouldn't have gone to law school if my dad had not driven it in my head that you better have a plan.

As his professional career wound down, he would use those relationships forged in the locker room to find ways into the world of business. He sat on the board of Power Bar after becoming a huge fan of the product as a player. He used to just down them on the sidelines, Like Niners teammates Ronnie Lott and Harris Barton, Young had become more invested in investing. He initially formed Northgate Capital with some ex teammates, and then went on to Sorenson Capital, where he first worked with his future partner, Rich Lawson. I actually started my career at Morgan Stanley, prior to business school, in the mergers and acquisitions department, and slept under a desk in New York and in Tokyo, Japan for Morgan Stanley. We had started as direct investors at a firm called Sorenson Capital, and that was probably 20 years ago.

The two eventually decided to create their own firm alongside two high caliber, private equity mentors, Bob Gay and John Huntsman Sr. What looked like a winning partnership among the four of them, initially called Huntsman Gay Global Capital, didn't last. Gay opted to take a job with the Mormon Church and Huntsman, who planned to join after his company was bought, never joined, when that deal to sell his company fell through.

So no Huntsman, no Gay, but Young and Lawson opted to press ahead as HGGC. So this is the inner sanctum. I like it. We did not clean it up for you. I apologize, this is a working day. That's great, and I do, I love the helmet.

The firm's offices are filled with sports memorabilia, much of which is used for prizes and charity work that Steve and the firm participate in year round. But Steve is quick to point out that it took a while for him to embrace being surrounded by his past. When I retired from football, Roger Staubach was my hero, and we developed a relationship, and I asked him, Roger, you are one of the greatest transition guys in the history of the NFL, to go do something else.

Give me some tips. And his number one tip was run. And I go, run, what do you mean run? He goes, just get it, run, away.

Yeah. And but he said, because it'll never leave you. You'll always have football and the history in the NFL and all the things that happened, but you need to run. You also, and I don't think this is a stretch, had some hesitation about being ex-football player investor. You wanted to be an investor. Is that fair? That's very fair.

And I think the more famous you are as a player, the more accomplished you are, the more I thought the difficulty would be to actually have people take you seriously. And I wanted my fame to be a tool. I didn't want it to be a weapon, and it's so easy to weaponize, right? You can bring in and just slay the room, and that's not the way I wanted to do it. But certainly when I started, I held myself back in some ways.

So integral to that transition as it were, that evolution, is Rich Lawson, your partner. And we actually, I talked to him last week about this very topic. So I wanna show you something, All right. His take on it. Bring some drama.

We have a very long hallway leading to our shared office, and I can't seem to get my own wall. And every week I would put up his jerseys from his various different accolades, the USFL or the 49ers or BYU. And it would be strange because one day they'd be there, and then I would come back from a trip and they'd all be gone. So I think for years he wanted to minimize what his past was, as opposed to embrace it. It's been really critical to our business.

It's given us a bit of a defining characteristic in addition to being good investors, because no matter how successful you are in other venues, if you're not delivering great returns for your investors, it doesn't matter. All true, every bit of it. I'll call it immaturity on my part, but it was born out of this desire to try to make sure that what I was doing, I wanted people to know I was serious about.

And that meant grinding it out on deals, doing the work to find, buy, and fix companies. HGGC has completed more than 500 portfolio investments, transactions with an enterprise value of nearly $50 billion. Young and Lawson's playbook? It's one of cultivating relationships over long periods to consummate deals. As time went on, the sports memorabilia and Wall Street deal toys, those lucite mementos of companies bought and sold and taken public, began to share space. You can see the 49er room is the main conference room.

Okay, we get it. Someone joked, I said, we promise to put you over Joe is the only place I ever get. It's funny, where I was sneaking around your office earlier, I saw that picture of you and Montana. Very intimate portrait. We all agree that it was awkward. It never wasn't awkward.

In fact, AT&T did a commercial on it recently. Exactly. But it was always profitable. And I think that was that creative tension that had in a part of it. And I'll always honor my time with Joe.

I hated watching, but I loved watching Joe. Do you think about that in the context of like business and CEOs and succession, like. Oh, hundred percent. You've got to, right? So much of this business is classic relationship. A few days later, I joined Steve at his charity golf tournament at Troon North, just outside of Scottsdale, Arizona.

The proceeds of that day go to his philanthropic organization Forever Young. For nearly three decades, that's served children facing significant physical, emotional, and financial challenges. I love golf, I love thinking about it. I just don't play it very often, but I believe that if you love golf and you don't play very often, you can get better kind of in your backyard. That's my theory, and it has proven untrue. Steve's ability on the course may not be etched into any record books, but following him around all day, it's clear that it's not for lack of trying.

Oh well. All right, off we go. We were constantly hustling behind him as he caught up with executives in the portfolio companies and reminisced with former and current players. He's a day trader.

He taught himself, self-made day trader. And so he's on the bus after a game in New England, and he's day trading on the bus, and Bill Belichick sees him and cuts him on the spot. The season that they went to the Super Bowl, day trading got him cut. You know, in many ways it's a convention, right, Of the people that I don't see, maybe once a year, we're half the field or more from our own portfolio in our own firm. And so it's kind of all come together. My firm, our charity, our fundraising efforts, and then the friends that are around, my dad and my brother, it's all happens right there as a confluence of all these parts of my life that have found its common center.

You should meet Andy. This is Andy in the black hat here. He's a CEO. It may sound trite,

but these personal relationships and conversations that Steve has with folks on the golf course, it's actually similar to his and the firm's approach to private equity. For them, the art is in the relationships built across the negotiating table. And even in the days, months, decades leading up to being at that table, rather than Excel based financial models ground out by young analysts in Manhattan skyscrapers more typically associated with buyout firms. If you could leave the hubris behind, that says, I love that business, but it would be so much better if I ran it, right.

To me, the more profitable way to do it, not just in returns, but in kind of legacy, in abundance, is to approach it kind of looking at the person across the table as your strategic partner. Help me understand how you fit into the family? One of HGGC's best partnerships was with Brian Adams, the founder and CEO of an insurance technology company called Integrity. Well, so we had an advisor that linked us up in the beginning, and you know, the first thing, everybody thinks of Steve as a football player, and you're intimidated by this idea of this Hall of Fame quarterback. But what you really see quickly is how humble Steve is, how normal he is. Integrity is part of an auction in 2016, one where 19 others were bidding. And while HGGC didn't put up the highest monetary offer, it was the relationship that Steve had struck up with Brian that helped them win the deal.

Steve and I got to know each other and got to become friends. And we started really kind of aligning our values. For us, it was a lot of this kind of value alignment. It was like, we've got to figure out how to become partners. And it's been an incredible rise for us. After HGGC took a minority stake in Integrity, Steve was appointed chairman of the board.

In six years, the company grew from a few hundred employees to more than 5,000. That's in large part due to acquiring 125 companies through M and A. Most recently Integrity got a new round of funding, $1.2 billion from Silver Lake, one of the biggest firms out there. They returned the fund and more, with one, just one investment off of a faith and a relationship, really more than anything. And a belief in each other.

Integrity is also an interesting example of something notable, and again, somewhat radical that you do around compensation and ownership, and something that you've extended that idea, even into your own firm in a different way. That's right. So walk me through that. Brian had the idea that, he had 3000 employees at the time, and you know what? The equity owners of the business, the people that have the stock, are making incredible amounts of money, but the employees are getting paid their salaries. What if we gave them stock? In 2019, Integrity would do something almost unheard of for a company of their size and potential.

They distributed partial ownership in the company to their employee base. He did that as a private business, and I thought that's a way to solve for a lot of the ills of corporate world and how people see the world, as building equity inside the employee base. And I loved that, and I think we've done it in our firm as well.

And kind of more distributed partnership and trying to give equity out. Ownership, not just held by two people, because what that does is it allows for generational mindset. Steve's work with growing players into business people mirrors the work he's doing at his own firm. There, he and Lawson are nurturing the next generation of investors at HGGC.

And they're thinking of how his legacy will live on in the world of private equity, through those younger executives. This is a place where there are 25ish investment professionals, and every single one of us is welcome to bring our ideas to the table. And those ideas are heard. So we meet every Friday for investment committee, and it's not just the investment committee. It's not the five or ten partners that meet, it's the entire firm.

And a lot of places, that's not the case. Good friend ran a famous private equity firm nearby. And he said, your culture is what I want our firm to be like? Well, what do you do? I said, well, the first thing you gotta do, is your founders need to put all of their relationships in the middle and no one owns anything. And you don't fight over those relationships. They're the firm's. 15 seconds, and he's like, yeah, that's not gonna work.

He's like, uh, I'm out. So it's like, the culture has to be kind of in the roots, and that resonates with people. Passing down this spirit of abundance approach to private equity, all came from Steve's playing days, and his Hall of Fame coach, Bill Walsh. I watched him do it in the late eighties. There's a guy with a camera, the old school, you know, big thing of on his back and he'd follow Bill around everywhere. Filming Bill as he spoke to the team, went out on the practice field, installed the offense, in the lunchroom.

And I kept asking, what is this, like a museum they're doing? Or what are they doing, a special documentary? Like, no one knew. Well, what it was, was that he was creating a physical toolkit of video based, audio based, of all his speeches, and all of his playbooks and all of his installations, everything paper based that he had, and essentially wrapping it all up as a toolkit to hand it to his assistant coaches, that he wanted to go have success in the league. Who takes all their secrets, all the things that makes them great at the height of their greatness, three or four generations ahead of everybody else in the league, and wraps it up and hands it to the people who are leaving to go coach other places and then says to them, you know what, I'll see you in the championship game.

And it happened. There's a spirit to legacy. There's a spirit to... And so I watched it and I said to him, Bill, why would you do that? And he said, Steve, we've got to give opportunity.

I want these men to succeed. And I thought, that's a heck of a statement, 'cause of course you do, but who does the actual work to give them the opportunity to go succeed and giving away what you own that is most valuable? Is that great business? You can make an argument that maybe that is the great business that we need to be in.

2022-07-17 06:42

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