Delco CEO on waiting to see if the risks pay off

Stephen Zarrilli, 55, needs a lot of patience or nerves of steel, or both.

Zarrilli heads Safeguard Scientifics Inc., the firm that made its reputation in the 1990s as Philadelphia's answer to Silicon Valley's venture capital giants, pouring hundreds of millions of dollars into tech start-ups.

When the tech bubble burst in 2000, it crushed Safeguard's stock and forced Safeguard's founder, Warren "Pete" Musser, to retire.

These days, Zarrilli, who joined Safeguard in 2008 and became CEO in 2012, leads a more modest firm, investing tens of millions, not hundreds.

The nerves of steel part comes in waiting to see whether the investments pay off.

Safeguard typically owns 25 percent to 35 percent of its chosen companies - a sizable chunk, but not enough to push the majority partners to sell.

Meanwhile, when it comes to the bottom line, Safeguard reports net losses. "The way we have more regular profits is to have more companies sold in any given year," Zarrilli said. "The only way you get into that rhythm is to have more companies under management.

How has that gone?

The first task was to take 16 or 18 companies and grow it to 30. We're on a path to get it to 40. Once you have a bigger stable, you should be able to sell three or four companies each year and produce profits.

Assuming you picked well.

About 15 to 20 percent of the dollars we put to work, we will generally lose. The industry standard for venture capital is closer to 40 percent.

We don't have as many grand slams, either. Some want to swing for the fences. We want the singles, doubles, and triples. We'll still score runs, but it may not be as flashy.

We're not going to get what we call 10X returns [10 times the investment], but we're going to have more 2, 3 and 4X returns.

All this depends on getting the entrepreneurs to sell the babies they love.

Let's take [Jean Hoffman], the woman who started Putney. At the end, she walked away with I think $14 million.

That's the generic pet pharmaceutical company Safeguard invested in. It sold for $200 million.

She's a woman in her mid-50s. She had educated her two children and now wants to use her financial resources to advance some other cause she's interested in.

As CEO, she knew the effort it took to take the company from no revenue to $50 million in revenue. And she knows that the effort it would take to go from $50 million to $100 million in the competitive world she had now positioned the company in was going to be four times harder.

Who needs all that work?

Right. Then you say, "How much more risk am I going to take?" Because that $14 million I can walk away with today could become less, or zero. I could go bankrupt trying to win a war against [well-endowed] companies.

You chair Ben Franklin Technology Partners, which provides seed-stage capital to the region's tech sector. Can we ever get the buzz of Brooklyn, Boston, or Silicon Valley?

The big debate here is: Do we have a capital problem or is it a people problem? I think it's a skill-set problem. The thing that's holding us back is that we're not producing enough scientists, engineers, and tech-enabled students.

Any hope on the horizon?

Comcast could be a game-changer here. Filling that second tower with their innovation focus is going to draw talent to the region. The talent looking at opportunities at Comcast are going [to be asking themselves], "If it doesn't work out, what can I do next here in Philadelphia?"

Any advice for people who want to be entrepreneurs?

First, you need to work for someone else for a period of time to understand how business operates. Second, I see way too many people who do not spend enough time building a personal network. So when tragedy hits or they lose a job, it's sad.

What are you looking for in an entrepreneur?

I really look for a person who wants to be collaborative. So, if you tell me you know your business, "don't worry about it," I'm going to tell you, "That's not the relationship we're looking to develop."

Interview questions and answers have been edited for space.

jvonbergen@phillynews.com

215-854-2769@JaneVonBergen

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Titles: Chief executive, president.

Home: Malvern; grew up in Cinnaminson.

Family: Wife Carol; children Chris, 24, Brendan, 23, Melissa, 20.

Diplomas: Holy Cross High School; La Salle University, accounting; now trustee chair at La Salle.

Homework: Returning to Penn for a graduate degree in organizational dynamics.

Resume: Started as a public accountant before starting or leading firms, including U.S. Interactive. EndText

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What: Radnor firm invests in companies. Revenues occur when they are sold.

For example: Earned $58.2 million when Putney, a pet medicine firm, was sold for $200 million. Since 2011, Safeguard has invested $14.9 million for a 28 percent share.

2015 dollars: Invested $56.1 million in eight new firms. Aggregate revenues of $420 million at 29 partner firms. Net loss of $59.5 million.

Employees: 30. EndText

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When CEO was fired, he learned the value of friends. www.philly.com/jobbing

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