Brad: Pappajohn is a Truly Amazing Man...
Yesterday on the way back from a meeting in Chicago I stopped by the Pappajohn Business Administration Building at The University of Iowa. It has over 170,000 square feet and is the most modern and largest academic building on the campus. The building has state of the art technology and a great computer center. I also discovered that Pappajohn provides financial support for the John Pappajohn Entrepreneurial Center -- a new division that offers business and engineering students a program in entrepreneurial study combined with another area. Finally, I found that there was an Advanced Real Time Information Center that is now open in the Pappajohn building. This gives students access to real-time activity of financial markets around the world.
Pappajohn is on track to become one of Iowa's greatest philanthropists. His Venture Capital track record has been legendary. Check out the enclosed article from the archives of the local Des Moines newspaper. It effectively comments about Pappajohn's character, his values, and his performance. There are many good reasons to believe that most of Pappajohn's companies will succeed. I like to invest in management. That has paid off handsomely with my DELL investment and I feel it may pay off with my large PCES investment as well. I can afford to be patient. The article below may give PCES investors some good reasons to bet on Pappajohn <VBG>...
Best Regards,
Scott
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Pappajohn Puts Money On People
Des Moines Register
Dec 12, 1993
DALE KASLER
<<A top venture capitalist in health care, the Iowan gives generously but shies away from attention.
One day in 1988, relying on little more than a handshake, Des Moines businessman John Pappajohn wired $250,000 to a 32-year old Southern Californian named Douglas Stickney.
The sum was invested in Stickney's experimental new company, Quantum Health Resources, Inc., a provider of home-health care therapies and support services to hemophiliacs and other chronically ill people. Pappajohn's faith was rewarded, and then some. Quantum, based in Orange County, California, prospered beyond everyone' expectations, and the $250,000 eventually mushroomed into a $62 million jackpot.
While by no means typical, Quantum demonstrates the fortune Pappajohn has made in venture capitalism, the specialized business of investing in young, speculative companies.
Over the past 20 years, this self made multimillionaire from Mason City by way of Greece has quietly built and bankrolled more than two-dozen companies, almost all of them in health care and related fields. He is unsurpassed in the art of marrying ideas with money, and bringing scientists together with entrepreneurs and investment bankers to create enormous wealth.
"Nose" for Deals
"I think I have a knack, a good nose, for finding good deals", Pappajohn said.
That's putting it mildly. "I don't know of another venture capitalist in health care . . . who has anywhere near the portfolio or the clout that he has," said Duwaine Townsen, a San Diego financier who has invested in many of Pappajohn's companies.
Yet Pappajohn is little known in Iowa. Aside from his alma mater, the University of Iowa, where his name is plastered on several buildings in tribute to the millions of dollars has had donated and the Des Moines Art Center, where he and his wife, Mary, are important patrons, Pappajohn stays mostly out of public view.
"Nine out of 10 people in Iowa probably wouldn't recognize him on the street", said his friend, David Miller, president of West Bank in West Des Moines.
Of course, he's usually out of state four or five days a week, shepherding a stock offering in New York or plotting strategy with one of his chief executive officers in Southern California. Away from Iowa, he operates in a fast-track, rarefied world populated by Wall Street titans and futuristic companies with names like Lasermax, Xsirius and Interneuron.
Lawsuits
He's had a few clunkers and has endured a couple of high-profile lawsuits, experiences that were especially painful for someone who prides himself on his integrity. Yet his successes far outweigh his failures.
Jim Gordon, a Des Moines financier who frequently invests with Pappajohn, estimates that 90 percent of Pappajohn's companies are successful. The typical venture capitalist hits on 20 percent or 30 percent. Pappajohn's average return on investment is a staggering 70 percent a year, Gordon said.
But the motivation is less money -- he has more than he will ever need -- than a desire to make something significant happen in the world of medicine.
He's a builder, not a quick-buck artist, and at 65 he's showing few if any signs of cutting back on his seven-day work weeks.
"He must enjoy creating", said James Mackay, a Des Moines investment banker and old friend. "He enjoys watching entrepreneurs grow".
And they swear by him. "John has created several millionaires in his life, over a hundred, probably more," said one of his CEOs, Anthony Lazos of San Diego-based Medical Imaging Centers of America.
Money Comes to Him
Pappajohn has people "waiting at my door" to do deals, as he puts it. His right-hand man in Des Moines, Gregory Brown, said Pappajohn has built his career and reputation to the point where the very best ideas are now coming his way.
"His name will be on every short list", said Stephen Morain of Farm Bureau Mutual Insurance Co. in West Des Moines, which invests in many Pappajohn companies.
And make no mistake. They truly are "Pappajohn companies". They cover the whole spectrum of health care, from DNA research to pharmaceuticals to computer software, but the one thing they have in common is they are his babies.
Unlike many venture capitalists, he remains heavily involved in his companies beyond the start-up stage, offering advice, making introductions, pointing out new market opportunities and so on. A self-taught expert on medicine, he constantly reads medial journals and is as comfortable discussing medical breakthroughs as he is stock offerings.
But he isn't a slave to technology. He sizes up the marketplace and makes sure he‘s comfortable with the entrepreneurs in who he's investing. "In the end, he bets on people" said Brown, Chief Financial Officer of Pappajohn's empire.
Quantum Investment
Take the case of Quantum Health Resources. Pappajohn first met Douglas Stickney in 1985, when Stickney's father was struggling with a health-care company of his own in California. Pappajohn invested in the company but didn't do much else.
Later when the company was sold, Pappajohn stunned Stickney by refusing to collect fat profits he could have made from the deal. He returned his stock to the Stickneys, saying he hadn't done anything to earn his money.
Three years later, the Stickney were kicking around some ideas for a new company to be run by the younger Stickney. The first person they called, naturally, was Pappajohn.
He flew to California, met with the Stickneys, and upon returning to Iowa wired them $250,000 on a handshake.
"He knew us, he trusted us", Douglas Stickney said.
But his involvement was just beginning.
As Quantum was starting out, the young CEO and the venture capitalist talked on the phone at least once a week. Pappajohn visited headquarters in California monthly.
He brought other investors into the fold and introduced Stickney to acquaintances in Rochester, Minn., who could help Quantum do business with the Mayo Clinic. He also made some introductions for Stickney in Iowa City, where the company established a branch. On a few occasions he loaned the company money out of his own pocket during tough times.
He coached Stickney for appearances on Wall Street, paving the way for the company to sell stock to the public in 1991. Reaching out to his vast network of contacts, he found a chief financial officer for Quantum persuading him to quit a secure job at a larger company by promising to pay his salary for two years if Quantum folded.
And, most importantly, he jumped on Stickney when he felt the CEO was getting cocky.
One day in 1989, Stickney crowed during a board meeting about Quantum's lofty sales. Pappajohn took him aside afterwards and warned him against "breathing one's own ether," Stickney recalled.
He didn't have to warn Stickney again.
Detail Man
Pappajohn offers ideas on matters great and small. When an old investment banker friend from Wall Street, Jack Sheppard, approached him about starting a new company that would make medicine from dairy products, Pappajohn structured the financing and helped formulate the strategic plan.
Pappajohn even cooked up the company's name, GalaGen. "Gala is Greek for milk, in deference to Pappajohn's ancestry. "Gen" is short for genetics.
Acquaintances say he's terrific at zeroing in on the nub of a problem and finding a solution. "His vision and advice are always right on the money", said Sheppard. "It's truly humbling".
He demands loyalty, hard work and honesty from his companies. He hates surprises; if something is going wrong, he'd better know about it before he walks into a meeting.
"John asks very hard questions", said George Ebel, Chief Operating Officer at Neural Applications, a small company in Coralville. "You'd better have your data backed up".
Staying Ahead
In the past few years, Pappajohn sensing which way the medical world was turning, began pouring money into companies emphasizing cost containment and managed care. A few of his companies have struggled under the weight of cost containment, and Pappajohn is determined to stay on the cutting edge.
"He doesn't try to latch onto a trend. He tried to create a trend" said Michael Vasquez, President of Health Care Expert Systems, a young West Des Moines company that makes computer software to help hospitals run more efficiently.
More than anything, people marvel at his energy. He is up at 5 and to bed around midnight, seven days a week.
He is an art lover and wine connoisseur but saves most of his time for work. He doesn't go to movies; he rarely reads for pleasure -- he took an hour off recently to read "The Bridges of Madison County". He has a summer house on Clear Lake so he can visit his mother in Mason City. But he spends most of his time at Clear Lake reading analyst's reports or working the phones.
Always Working
Pappajohn is gracious and friendly but not a schmoozer. He hates to waste time, Miller, the banker, said that when the two men go to lunch, Pappajohn brings a written agenda.
Mackay, who used to accompany Pappajohn on trips to Wall Street, recalled that after a hard day's work in New York, Pappajohn wouldn't even unwind over a casual dinner. Rather, the meal was a working session with suit jacket on and tie knotted properly.
"You had to be paying attention" Mackay said. "You had to be taking notes".
An unhealthy lifestyle for many people, but Pappajohn thrives on it.
"He feels very relaxed when he's working", said his brother, Socrates Pappajohn.
He has been married 32 years; he and his wife, Mary, have a daughter in New York. Friends and relatives say Pappajohn is a devoted family man, despite his workaholic schedule. He phones home a lot and is there for the important events.
"It's quality of time", Socrates said.
He avoids the limelight. He's not a county-club type or a civic activist. He agreed only reluctantly to be interviewed for this article; it was his first in-depth interview with The Des Moines Register in nine years. He said he was uncomfortable posing for a photograph and instead supplied a picture taken for a U of I publications two years ago.
Travels Coach
He makes millions in glamorous business but, by all accounts, is a humble man with little interest in glitz. This frequent flier travels coach ("I upgrade when I can") and usually takes a cab, not a limousine, to his appointments.
He's probably best known in Iowa for his gifts to the U of I, his alma mater.
"He has an ambition to be the biggest philanthropist this state has ever seen," Miller said. "His desire is to make money to give it away".
Yet John Colloton, a lifelong friend and former head of the U of I hospitals, said he had to cajole Pappajohn into donating money for a new medical pavilion on campus -- not because he didn't want to part with the money, but because he was embarrassed to have his name on the building.
"You understand where I come from" Pappajohn said.
Pappajohn was born in Greece and his parents emigrated to Mason City when he was eight months old.
The oldest of three boys, Pappajohn had to repeat kindergarten because his English was so poor. His father, George, ran a corner grocery store in a melting pot neighborhood in southwest Mason City.
When Pappajohn was 15, his father died. Pappajohn and his brothers , Tel and Socrates, took over the store.
Worked in a Butcher Shop
The boys put each other through junior college and the U of I by taking turns working and going to school, Socrates said. John helped make ends meet in Iowa City by working in a butcher shop.
After graduation, John and Tel formed their own insurance agency in a former Mason City hamburger stand they had bought for $300. Insurance appealed to them because they could get started in the business without much money.
A few years later, in 1961, John Pappajohn moved to Des Moines, put together a $1 million stock offering and founded Guardsman Life Insurance Co. He made himself chairman of the holding company and hired an insurance executive from Chicago to operate Guardsman.
Guardsman succeeded. But in 1969, Pappajohn left to try his hand at the relatively new field of venture capitalism.
He was 41, an age when most people are not looking for new risks.
"I sold my Guardsman stock, I had a little cash", he said "I've always been a risk taker".
At first, he mostly bought and sold existing businesses. "I was selling fertilizer companies in Iowa, and farm equipment companies," he said.
Turns Sour
One deal in the early ‘70s brought him grief. A Des Moines farm-implement financing company he partly controlled purchased another loan company with money borrowed from the takeover target. The deal spawned a complicated series of lawsuits that wound up with the courts ruling against the Pappajohn group.
"It hurt him a lot", Socrates said.
Pappajohn says the deal simply was an early version of a leveraged buyout, in which a company's assets are used to borrow the money needed to buy it. "I think that the judge didn't understand it", he said.
In any event, Pappajohn quickly found his niche: medicine.
In 1972, officials of Kay Laboratories, a struggling San Diego company that made hot and cold packs asked Pappajohn to find fresh capital. He helped turn the company around and it was sold 10 years later.
Pappajohn earned more than $1 million, and more importantly, developed contacts in the field. The personnel from Kay Labs helped him form three more companies, one of which sold for $580 million eventually.
He developed a core network of start up investors, including Farm Bureau, Jim Gordon and a group of European pension funds that funnel their money through a San Diego venture capital group. Pappajohn's family members and friends usually get cut in for a small slice.
Good Bet
Pappajohn investors do very well. Morain said Farm Bureau has made profits of $33.9 million on investments of $25.1 million.
Because of his track record, his regular investors jump into his deals with very little hesitation, Morain said. They like the fact that he's putting his own money on the line, not just risking theirs.
Instead of driving a hard bargain, he makes sure everyone is comfortable with the deal. They understand a Pappajohn deal might take a few years to ripen and then know Pappajohn won't cash out until the investors have gotten their share.
His reputation for integrity is Pappajohn's most precious asset, Morain said.
Which is why it pained him so much when he was sued by James Schaer, an employee in his Des Moines office that he fired. A jury concluded Schaer had been wrongfully dismissed and awarded him $750,000. The award was reduced to $239,000 and while the case was being appealed, the two sides arrived at a settlement. Neither side will discuss the matter, but friends say Pappajohn was hurt as much by the front-page coverage in The Register as by the case itself.
"If he lived in (a big city like) San Diego, that would have been ignored", Miller said.
Pappajohn works out of the Des Moines Financial Center in a 21st floor office decorated with modern art and trophies of previous deals -- miniature copies, encased in plastic paperweights, of investor prospectuses and tombstone ads announcing stock offerings.
He has a three person staff and works through two entities: Equity Dynamics Inc., a consulting firm that manages his real estate holdings (a few buildings around Des Moines mostly) and Pappajohn Capital, which invests in his companies.
Iowa Boy
His friends wonder why he continues to put up with the travel and high taxes by continuing to live in Des Moines.
"He has no reason to be in Des Moines, Iowa", Miller said. "He has a funny allegiance to this state".
Several years ago, Pappajohn thought about moving to the West Coast but decided against it.
Iowa is a "great place for a family", Pappajohn said. "This is real world, and you know it's a wonderful place."
Brown said he thinks remaining in Iowa helps keep Pappajohn rooted in the real world. "It helps him keep a little better perspective than if he spent his whole life in a penthouse in Manhattan", Brown said.
Recently, Pappajohn has invested in a few Iowa companies such as Neural Applications of Coralville, a maker of computer controls for industrial uses, one of his few non-medical investments and Health Care Expert Systems, the software company in West Des Moines. He and his investors are about to pump $3 million into a new biotech company called Neogene, spun off from research at the U of I.
Pappajohn says the Iowa business climate is becoming more promising for venture capital deals. But his Iowa protégés, such as Robert Staib of Neural Applications, wonder whether he isn't investing partly out of home-state loyalty.
Whatever the case may be, the desire is still very much alive. There are companies to be built and markets to be explored. There are deals to be done and fortunes to be made.
Last spring he left the board of Quantum Health Resources, probably the most successful company he ever built. He had done what he could for Quantum, he told Stickney and it was time to move on.
"There are three other Quantums out there who need me" he told his young protégé.>>
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