Alpha Partners is a next-generation growth equity firm focused on accelerating private technology companies. Pulse 2.0 interviewed Alpha Partners’ managing partner, Steve Brotman, to learn more about the firm.
Steve Brotman’s Background
What is Brotman’s background? Brotman said:
“When I reflect on my career, I have been very fortunate. I began as an entrepreneur with my first venture, a software-as-a-service company, AdOne, which I initially developed during an entrepreneurship class at Columbia Business School. The software enabled newspapers, which dominated classified ads at the time, to go digital and create their own online classified advertising sites as well as being aggregated into a central site searchable globally; we managed to onboard over one-third of the newspaper industry. AdOne was eventually acquired by a media consortium led by Hearst.”
“After the exit, I started angel investing. A few of my friends and family wanted to invest with me, and I ventured into the world of seed-stage venture capital, so I started Silicon Alley Venture Partners. Our funds raised $100+ million whose focus was mainly on the nascent B2B software as a service sector as well as business information services. I had the good fortune and privilege of being an institutional investor in companies such as LivePerson and Medidata Solutions, now multi-billion dollar public companies. Greenhill & Co acquired our venture firm, which later evolved into Tribeca Venture Partners.”
“Today, as the Founder and Managing Partner of Alpha Partners, I’m focused on guiding and mentoring the next generation of disruptive companies. I also serve as an Advisor to the Pritzker Group.”
I did my undergrad at Duke University, majoring in Economics then after a short stint at Accenture (formerly known as Andersen Consulting), got a joint M.B.A./J.D. from Washington University in St. Louis. I finished out that degree at Columbia University.”
Evolution Of Alpha Partners’ Thesis
How has Alpha Partners’ thesis evolved over time? Brotman shared:
“I would say the thesis has not changed, but we have scaled our business and our relationships. When we first started Alpha in 2013, we called 30 different VCs, and that’s when we launched with 30 relationships. Today we have 900+ relationships. I would say that our thesis was ‘if we get a decent shot at a couple of great deals, that’s a win’ to ‘we’re looking at 20 to 30% of all growth stage deals today.’”
“At the end of the day, there are three things that drive returns: access, information, and judgment. All three of those things have developed over the last ten years. On the access front, we now have 900+ VCs that we work with. We have a team of 11 professionals – I started out with myself, a part-time person, and an analyst. I didn’t even really have the analysts at the very beginning. So the first few years, it is tough when it’s just you. However, we’ve built out that vision to be much bigger in terms of the access to opportunities.”
“From an information perspective, we rely pretty heavily on our referring VCs. Over time, we broadened that network to include a lot of growth-stage investors, like at our Alpha Market event that we’re hosting with Insight, General Atlantic, and BlackRock. You don’t get that level of access out of the box, but over time, you build up credibility. While we source a lot of our deals from those smaller 900 VCs, we can cross reference with our other VC partners who are often in those opportunities.”
“The third piece is judgment. At first, it’s a lot of intuition, and a lot of folks start out life – in venture at least, or even in private equity – as more of an art critic. An art critic’s approach to looking at an opportunity might focus on the vision. This is similar to an art critic marveling at a painting: ‘Oh, that’s beautiful, I love the splashes of red and green, and this emotion comes through and blah, blah, blah.’”
“Growth stage investing is much more like an airline pilot process: ‘Okay, revenues are over $20 million, check; scaling at 100% a year, check; category leader, great governance, great management team, great VCs on board, leader investor, massive market, check check check check check.’ So the point is that we’ve migrated from an artist’s take to an institutional take, which is much more process-oriented and systemic, in origination, information, and then using judgment.”
“I think that’s how we’ve evolved over the last 10 years. Institutional investors do not want luck. They want a consistent capability to generate alpha returns that are above market returns. Today we manage close to $500 million, up from $10 million a decade ago.”
Favorite Memory
What has been your favorite memory working for your firm so far? Brotman shared:
“One of a GP’s favorite moments is when you return a lot of money to your LPs. So Coupang finally going public after we were an investor for six years was a big event for us. It’s also validating our judgment, our expertise, and our sourcing capability. Over the last couple of years, I’d say all of our exits like Wish, Vroom, and Careem have been validating in this way.”
“We’ve returned over three times investor capital on a cash on cash basis. It takes a good amount of time to demonstrate your capability in this business. LPs don’t really know if you’re any good until you start returning their money. That’s what we live for.”
“Another cool twist to what we do is we offer our LPs the ability to co-invest with us. Those are some of my most favorite parts of what we do because we get to share our most high-conviction opportunities with our LP base. I never expect 100% of folks to be excited about an opportunity. But in general, what we find is that they’re as excited as we are. So that’s indicating to me in a way that we’re looking at some really interesting stuff.”
“Frankly, the last 18 months have been kind of hard because valuations have been hectic, and the shocks to the system have been pretty extreme. Standing by our first principles has really helped us over the last 18 months or so, and we’re seeing some really incredible companies every quarter.”
“Venture capital, growth equity, and private equity are a bit like riding a roller coaster. We have such great opportunities every quarter. I’m like, “How can we top the last quarter? How can we see the next great company that’s going to change the world?” And every time I’m surprised we were able to do that. I shouldn’t be, I should be thinking that this is what we do. But I’m always surprised when we see that next break. I just think, “that’s incredible. How come that wasn’t done before? Why isn’t someone doing that in that way? And at scale?” We get to see them when they’re at scale, and in some ways, it’s like seeing the future before it happens. That’s really cool seeing a bit of the future, like with a 6 or 12 month or 18 month or 24 month lag.”
“We often get front-row seats at some of the best opportunities, the most exciting parts of the tech ecosystem. Just to give you a flavor, we looked at Open AI, and we looked at Twitter; we didn’t do those deals, but just having the front-row seat to see what’s happening there is just super cool – and with some of the most amazing people in the world. We just invested in ShieldAI. They are an AI software pilot that licenses their software to folks like Boeing and Northrup Grumman. It’s definitely the future of autonomous aviation, drones, transportation, and, probably, even warfare.”
“I think entrepreneurs are among the most interesting people on the planet, and we like to drive innovation by fueling the right founders with mind-bendingly huge opportunities to put a dent in the universe.”
Significant Milestones
What have been some of Alpha Partners’ most significant milestones? Brotman cited:
“When we moved to the Empire State Building, that’s a pretty big deal for us. That’s kind of cool. It’s sort of an iconic building. I’d also say it’s having some of the best venture partners around us, like Mike Ryan, Matt Krna, Kerry Kellogg, and Sean O’Brien.”
“What’s so awesome about what we do is that I get to work with some of the people I’ve respected the most over the last 20 years. Folks like 20+ year VC vets Charlie Federman, Marc Michel, Erik Jansen, and Chris Girgenti. The best part about starting your own business is that you get to choose who you get to work with, and that’s pretty phenomenal as you spend so much of your life at work. We’ve really tried to create a very open and authentic culture at Alpha. We’ve created systems that allow even junior people to speak up when we evaluate opportunities. We have an open grading system with clear and objective criteria. So when it comes to evaluating opportunities, anyone on the team can raise their hand and challenge the opportunity, not on a personal or emotional basis, but really talk about, ‘Hey, is this company really going to be profitable soon? Is this company really a category leader?’ Allowing everyone on our team to be engaged is powerful.”
“Additionally, we’re knocking on the door of closing Fund Three, which is a big deal. We’ll have $200 million under management if we can hit our target, and we have about $150 million now. And then, typically, we’ll have another $150 to $200 million of co-investment alongside that in opportunities on a deal-by-deal basis. We’re up to 20 people at this point, which is a good milestone. We’re having our third Alpha Market on October 18. These were very successful pre-COVID. Having great investors like Deven Parekh from Insight Partners and Tanzeed Syed from General Atlantic keynote at an event that we’re putting on focused on growth equity – it’s like having your heroes speak at your own event. I mean, how cool is that? Blackrock’s head of equity capital markets, Chris Daniels, is going to be speaking there. And then some phenomenal portfolio companies that we’ve backed.”
“This year we are celebrating our 10th anniversary. Personally, I have been a VC and growth equity investor for 24 years. From my perspective, that is super cool. Few VCs get to be in the business for 25 years. Look, it’s just math; who wants to invest in a bottom-quartile VC? If you’re a doctor or a lawyer, you’re an average doctor or a lawyer, you’re still going to get business, right? Or an average school teacher will be just fine. But who wants to invest in an average VC or private equity firm? No one does. You might get a pass for a few years or even five or ten years, but you can’t make it 25 years if you’re average. At least half the industry gets washed out every few years because they’re just not good enough. So that’s a pleasure and a curse. What’s also cool is, over time, the people with whom you do interact with they’ve proven their worth over time. So, making it to 25 years is pretty cool. I think I can finally rest a little more easily because when I started the shift from the early stage to the growth stage, I basically had to reinvent myself 10 years ago.”
“Not everyone is given the opportunity to reinvent themselves and have a second take. I would say that this is my fourth career. I was a coder and entrepreneur, then an early-stage VC, and then a growth-stage VC. I’m pretty blessed in that respect. This year is the first time I can kind of look back and say, ‘yeah, I did that.’”
Differentiation From Other Firms
What differentiates Alpha Partners from other firms? Brotman concluded:
“What sets us apart is that instead of competing with every VC and private equity firm – so if there’s 2500 VCs in the world most of them compete with 2499 firms – we partner with all of them.”
“What makes us special is that when Sequoia did the F round of Coupang, we were still able to participate because we’re considered insiders because we work with the insiders to monetize and help do their pro rata inside rights. But the other 2499 VCs in the world no longer have that chance to invest once another VC leads that round. That makes us pretty special in that we can access opportunities that essentially other firms can’t. We get a chance to be a venture capital firm’s best friend when a VC firm doesn’t have many friends. Alpha offers a helping hand that they’re really not going to get anywhere else.”
“I also think the information flow is uncommon because we don’t compete against 2500 VCs … they’re our partners and brethren. When we look at an opportunity, they openly share with us their thoughts and feelings about it. Obviously, they might be a little biased, but since they don’t compete with us, they don’t feel as challenged by us. Hence, we’re more colleagues looking at trying to make the world a better place. But since we don’t really compete with them, it’s more friendly.”
“Lastly, just having an uncommon amount of shots on goal, as well as information flows, make for improved judgments over time. We just get better and better as we get older and longer doing what we do.”
“In venture and private equity, it’s easy to become obsolete. Some early VCs focused on, say, computer chips and hardware because, in the early days, that is where the returns were. When software caught on, a lot of those VCs that were chip VC backers couldn’t make the transition to software. What’s cool about what we do at the growth stage is that we’re constantly learning about that new phase and the next phase, and we’re not as caught up in the new new thing; we can wait until tech is more proven. By partnering with VCs, we pay them a portion of our profits to partner with them. So what we do is not a free lunch. In the end, as a VC partner, do their best later-stage deals, they do not have the capital to do it themselves. We make it more lucrative to be an early-stage VC.”
“I think it’s important in this world to be mission-driven. If it’s all about making money, it’s sad. Not only are we able to back the great companies, but we also have an impact on the world. If we can make it more lucrative for the Ben Suns of the world – when he was running a $2 million accelerator, we were able to put $30 million or so to work in Coupang with him as a partner. We made it much more lucrative for him to be a VC, as Coupang returned another 20x from that point.”
“It’s sort of being the angel to the angel, if you will. That might be very meta, but I think it is true because what most people think of VCs is that they all make tons of money and that it’s chocolates and berries every day, and every day is better than the next, with rainbows everywhere. If we can make their am early stage VC’s life more pleasant, then they can go on to do bigger and better things. We make it more lucrative for them to take that light, that energy that they have, and back dozens of other entrepreneurs. I don’t want to take credit for that or what any of our VCs do. But if we can make it more lucrative and more fun to stay on the board of a company that they worked on for 6, 7, 8 years, thats pretty cool. They might have one company that’s a unicorn in their career. By backing that VC, they can stay on that unicorn’s board. Just being able to observe their baby growing up close and in person that’s a pretty cool psychic reward that VCs get. We do think of them as family. If you can help people who are helping others, that’s pretty cool.”
