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00:00You wanted to go into technology banking like all things you know land of the blind one eyed man is king. Where there are a lot of African-Americans in the technology area at that time . Very few very few. What propelled you to say I'm going to give all this up and go start my own company. Very few software companies were actually efficiently run. We took these kernels of best practices. You became very involved in philanthropy philanthropic endeavors were part of my family. My family dynamic. One thing we have to do is ensure that our society is a just society. Would you fix your time please. People wouldn't recognize me if my tie was fixed but it just seemed so sweet. All right. I don't consider myself a journalist and nobody else would consider myself a journalist . I began to take on the life of being an interviewer even though I have a day job running a private equity firm. How do you define leadership. What is it that makes somebody tick when you were growing up in Denver the son of school teachers did you ever think you would become the wealthiest African-American in the United States. I was basically raised in a family of I'll call it achievers like my mother and my father both had doctoral degrees in education and they emphasized not only to my brother and I but to the rest of the family the importance of really a becoming educated be working really hard and in C trying to become the pinnacle of success in one's community. And you know when I look back at those days and the formative elements of who we were in our communities I saw parents who gave generously of time energy effort and intellectual capacity to our to our community. And I think what that led me to do was always think about striving for excellence. Talk about your background at the moment but I'd like to now just explain to people what you actually did that made this great fortune. What we did and what I was able to do was was bridge a couple of ideas you know software is truly still the most productive tool introduced in our business economy over the last 50 years and through my work when I was early as an investment banker I got to see a number of software companies and how they operated and I ran across one that turned out to be a client and ultimately the owner of that business that that that trust ended up being my first investor and that particular business had a set of practices that they used business practices that help them run that business more efficiently than any other software company that I had seen . And so in essence what I would say you know took some of the kernels of those best practices and said if you took them and as an engineer and create a process around delivering those best practices across the world of enterprise software you could do quite well when you grew up in Denver. Was there a lot of discrimination then against African-Americans. I grew up at a time when when desegregation was just starting and so prior to that you know like all cities in America in large cities and there's there's segregated communities and there still are for the most part and it's unfortunate. I grew up in a predominantly African-American community. We all lived in that community for the most part because you still had redlining you still had an accessibility to to capital to buy homes which created in essence the basis of a lot of the wealth in America . So it was a time in growing up that I really understood the importance of community and it was pretty much a segregated community that I grew up in until we started bussing in forced busing created the desegregation leasing the school systems . When you were very young your mother brought you to the march in Washington you did with Martin Luther King made his famous speech. I think the impact of her bringing me and my brother here not only was you know for the summer but for us to understand that our community stood for something our community was striving for something and it was important that we were a part of it. And I think that's part of the lifelong you know part of my soul which is I have to give back and help my community move forward in this in this wonderful country called America. Now as we have this discussion now we're in the African-American History and Culture Museum to which you're one of the largest donors. This is very near where Martin Luther King gave a speech. Jackie right. And your mother was living in Denver at the time that correct were brought here. But she grew up in Washington she did went out. And your grandparents . What did they do. My grandfather actually was the postmaster general for three post offices here in the D.C. area and before that when he was in high school he actually worked in the Senate building and what he did was he actually worked in the Senate lounge and he served coffee and tea and and you know put two hats and coats from various senators as they came in when President Obama was first inaugurated. I brought my grandfather who was 93 at the time. And while we were sitting there and in our seats and really really understanding and feeling the majesty of the moment for him he said he granted you look up there in that Senate building and he pointed to a window above one of the flags and said I used to work in it and that in that room and he said I remember looking out that window when FDR was being inaugurated and he said I remember there wasn't a black face in the crowd. And here we are. And I'm sitting with my grandfather seeing the first black president being inaugurated said America is a great place as long as you're willing to work hard and drive forward on a set of principles and ideals that are important and frankly authentic. So that sticks with me to this day. So you went to Cornell and you majored in engineering didn't chemical engineering and now the school chemical engineering is now named after you as a result of gifts that you've given. How about that you graduate from Cornell and then your first job. Is that good year. Yeah. Good you're trying to cover it right. And you went to air products and chemicals right. Went to Air Products and Chemicals and worked in applied research and development and had some wonderful experiences there to develop some cell line of products. We would not call fresh back that actually extended the shelf life of foods. And then from there I went into Kraft General Foods and there I had product equipment and process development. And for me my old life at that point I was all about you know how do you create a solution and unique solutions and no one else had come up with great ideas and no one else or had it ever come up with and solve problems. How did you go from working in the engineering RTX of these various companies to a financial engineering expert of Goldman Sachs . There is actually quite an interesting story I had done very well with top student for our first year in business school. So I did come back from a summer graduation to get this award. And as I went through my background there was a gentleman by name and John Newton who ran his own investment bank at the time who was the keynote speaker and he comes over to me after they give you my ward. He has a speech I say you have a really interesting background. Have you ever thought about a career in investment banking. And I said well I said there's a bunch of former investment bankers in my class I don't like any of them . And he says Well why not. I said well they think they know everything and a pretty arrogant. I said you got to understand I'm an engineer. We do know everything that bothers us. And he chuckled and I was happy that he didn't take offense to to my joke but what I did was I said you know honestly I don't understand what investment bankers do you know I was a scientist. I was a technologist. I you know I thought about the world through that lens. And this is another case where someone extended themselves for me which is why it's important that I continue to pay that forward. And he does want to come to my office and let's talk about it. So he invites me down and we sit down and we have lunch. He picks up the phone and David calls people like Stan O'Neal. OK. At the time as a CFO of Merrill Lynch ultimately ran Merrill Lynch and Kinch now and as are all prominent African-American but all prominent African-American business leaders and all of them took the meetings and from there they introduced me to other people to take meetings. I literally had over 100 interviews in the fall of my second year in business school and figured out that mergers and acquisitions was the only business I wanted to be in in investment banking . And I said because with the exception of warfare it's how assets get transferred on this planet. It's a CEO never discuss in support of discussing this. A strategic discussion. And that was quite interesting to me and I thought I could add particular value and insights into into that particular business the three jobs you had before you went to business school. Did you feel any discrimination against you. Because you're every American . Oh yeah. I mean I. It's one of those in America I have and still do. You know I remember a time when I was actually at Air Products and I was invited to give a talk in California in San Francisco at one of the big conventions and this this man comes over and he he asked questions about well how does it work in the extension of shelf life of rice and cooked rice and I'm telling you how with it you know I explained that the dynamics the biology and the organ and septic issues you have to think about in addition to the microbiological issues the guy said you know you're a very smart guy you just have your heritage to overcome in order to be successful in business. And you know that kind of stuck with me at a time that you know after all of this wonderful work that we're doing that he's still viewed me through that lens as opposed to the work that I had done. You went to Goldman and said I'm leaving. Did they try to talk you out of it like they did of course at some point in time in your life you know you got to look yourself in the mirror and said you know you have to take a little risk we went to Columbia Business School and I assume we did pretty well there because you went to Goldman Sachs afterwards straight . What year did you join Goldman. In 1994. So you worked there for a while and then had you decide to. You wanted to go into technology banking right. So like all things you know land of the blind one eyed man is king. And at the time technology for us was it was defense contractors. We had another company we took a public one called Microsoft. We had this other company we called on called IBM and that was the world of technology as far as Goldman was was concerned. Were there a lot of African-Americans in the technology area at that time. Very few very few hours our first man a banker on the ground in San Francisco focused on tech and then we decided to form a tech group. And so that created the whole another whole another nexus and dynamic of opportunity. Your job is to convince clients to hire. GOLDMAN You've got to give them good advice right. Did you meet Steve Jobs. I didn't meet Steve Jobs personally but I was on the team that we actually got engaged we had to at the time. You may not remember this Apple was under assault. Steve was it. I'm not coming back unless there's a different board. So we fired the board got rid of the CEO and invited Steve to come back. All right. So you're doing very well out there you're now living in San Francisco area. You're making a big success you by investment banking centers I presume you're highly compensated so forth. What propelled you to say I'm going to give all this up and go start my own company . Right. So the interesting thing that occurred as you know again as an engineer that I realize way back in my good year entire in rubber days the impact that software really had on businesses . The thing that I noticed that there's very few software companies were actually efficiently run. Well why the big part was most executives who started software companies. Well they wrote code or they knew a market opportunity and they sold the code. There was never anyone who taught them how to run software companies. So I didn't run into this the small company I say small in Houston Texas that is the most efficient software company I've ever seen. They had some very basic things that they just did extremely well. And I said well if you took those basic things and actually applied them ultimately to other enterprise software companies you could run those businesses very similar to the way they ran theirs and would create tremendous value in those companies. That's that was the idea . That was a conceit. And they said that's a good idea why don't you do it. Well yeah. In essence they said well if you actually thought about taking some of these best practices and putting them buying enterprise software companies and driving them forward you could actually do pretty well. And I said that's a great idea when you do that. And I said Well you know they gave me one of those offers that looked quite interesting and I remember my lawyer said this is a bad deal Robert but you should take it. Right. So you went to Goldman and said I'm leaving. Did they try to talk you out of it. I Paul Sweeney . Of course they made the pitch against it but you know I like all things David. At some point in time in your life you know you've got to look yourself in the mirror and said you know you have to take a little risk and go see if this is some how old were you when you took this. I was 39 years old and it's so interesting. So of course I started doing research it was the same age that others left what they were doing to go start their businesses. I said well let's go give it a run. All right. So you started buying companies with the money that from the Houston company. How many deals have you now done. If you look at it today it's a little over 300. One of the things you did that was unique. Many people think that by our people what they do is they lever up a company borrow a lot of money tell the CEO do the best job you can and then they hope for the best what you actually did was something different you actually put a system together to make sure every one of your companies was going to follow this system. Can you explain that. Sure. And it's important you know early on in the world of software you couldn't borrow money and software companies anyway. It wasn't until probably 0 6 or 7 you could actually lever up software company. So there was no debt available so the only value you the value that you could create had to be inherent in the business you had to now improve the operation. So what we now do we took these kernels of best practices and in essence have now developed a whole systemic approach. Here's how you use as best best practice to improve the the the efficacy of whatever that functional area is within within within that company. We then have a group now called Vista consulting group that delivers EV over 100 people in that group that actually deliver these best practices with them to the management team and the management team adopt those best practices. The way I like to think about it we install the best practices in those businesses that actually cracks the Rubik's Cube of profitable growth. Not only are we increasing the profit margins of those businesses but we actually can accelerate the growth in those businesses at the same time. Well let's describe Vista today. How many employees are supposed to have. We have about 300. So call it one hundred or so in my investment team. One hundred and so at BCG and call it a hundred or so an administration so three hundred people in the core of what is Vista. At what point did you realize you were pretty good at this. Was it the first year or the second or third year or when did you realize Hey I'm really good at it. It took a while Believe it or not it wasn't until we really at our first fund we actually closed out the last deal in the first fund and said we actually are pretty good at this. They've signed the Giving Pledge. One thing we have to do is ensure that our society as a just society our society has the ability to actually cure its own problems and while we accumulate the wealth on the one hand we need to also solve the problems that we that are facing us to day while we are alive . So I guess I need to show you this way David. Here we go. All right. Very impressive. What we have here is this center is designed really to capture all of the records of the African-American experience and there's the records that were institutional. You know if you think about Friedman bureau in other places we can now go and capture those and digitize them and you can have access to them. And this is the best of the institutional records. But the real beauty here is how do you now go and give everybody a chance to put their family's history and their narrative as part of the U.S. environment or part of being a part of us here in a place that's accessible so generation upon generation can now find you know who they were what they're how they contributed and not just the 500 people that we see represented that everyone knows but the millions of people who will come. What about your family. Well I hope that they're here. But I'm excited we should probably go take a look and see if any of that is accessible at this point ancestry and a family says you can search for individual people . The first hint we get is a one or two to 1950 when I say 1940 . So let's close. Here we go. Go. Yeah. There you go. Voila 1881. That's a good guess. And the census this is the 1940 a great grandma great grandmother great grandmother. So here you can see they live on Florida Avenue. She's a domestic renting their home. She's an eighth grade education. And in the 1940 census She's 59 years old. Do you recognize the names are all my grandfather's siblings. I'll put this together right. All right. When you became very wealthy which is in the last few years or so you became very involved in philanthropy much Uber giving has related to African-American related projects for causes. And I'd like to just talk about a couple of them. Sure . The African-American History Culture Museum where we're now at . What attracted you to that cause. Sure. There two elements we have been stained by the history of slavery and is still stained by the part of racism. But what we need to do is make sure we have a monument to the people who have actually put their blood into this soil that created. What is the best country in the world. So that's point number one point number two I think it's important that the people African-American people have a place to come to feel a sense of pride of who we are and where we're going and also contribute their story. A majority of my gift is actually the digitization of the African-American experience so any family can now digitize their photographs their narrative their you know their videographer whatever it might be. And it's now a part of this museum and people will be able to learn about their family histories in it in ways that come alive. Was this something that your parents instilled in you or why do you decide to become such an active philanthropist. Just a few years I saw my mother write a twenty five dollar check to the United Negro College fund every month growing up and even when I wanted a new pair of Converse All Stars she said Go earn the money to get them yourselves as he wrote that 25 dollar check which I could about two pairs with you know she she instilled in me the importance of giving to the community. I saw my father who was on the board and ran the local YMCA in east Denver YMCA. And I know how he contributed time and energy and intellectual capacity on raising funds so the kids in our neighborhood could go and spend you know camps or summer camp and enjoy the outdoors and understand the importance of the outdoors and building one's sense of spirit and one's soul. So all through my life growing up you know philanthropic endeavors were part of my family my family dynamic . You signed the Giving Pledge was that a hard to do which says you're going to give away half your wealth. It wasn't hard . You know it's it's so interesting you know I in it's wonderful that you know that Bill and Warren and folks like you are actually out there having and being an evangelist for what this is. One thing we have to do is ensure that our society is a justice society our society has the ability to actually cure its own problems and while we accumulate wealth on the one hand you know we need to also solve the problems that we that are facing us to day while we are alive. Part of what I think about is I know today the problems that are facing the communities I care about and if I have the capacity to do something about them frankly it's on me to do something about them in the giving pledge as a is a good way to put a signal out there that say listen this this is the right thing for anyone who accumulates wealth of any size irrespective of whether you sign the pledge to actually care about the community in very meaningful ways . You have another very interesting philanthropic project. You have a ranch that you have converted. It's called Lincoln Hills . It's actually the oldest African-American resort community founded by African-Americans and it was founded as a place where African-Americans could buy a plot of lion land for twenty five dollars build a cabin and that today would come in summer and spend the vacations. I went up there the first time and I was just six months old. So goes way back in history. Everyone from Duke Ellington to Zora Neale Hurston to Langston Hughes and count basie all come there. They stay there because they could not stay in the hotels in Denver they're in that period of history. So over time is you know after desegregation like a lot of the African-American institutions kind of fell in disrepair and got sold off in different parts and now we've developed a wonderful program that serves our community in so many different ways. Six thousand inner city kids every summer come to the ranch. We also get to about two to three hundred veterans every year in the winter though when the ranch is pretty much shut down one of the things that we identified Mike my wife identified this was that there are programs once called together we rise. We partner with that actually handles aging out foster kids. So now we have built at the ranch a 16 bedroom ranch house and we we can host up to 30 kids during the during the holidays so we host them and do all sorts of fun activities with them. Here a big fly fisherman. I love it. Yes. Now tell me what the appeal is because now you have a big brain and you're trying to outsmart a little bit more brain. So why is it. Because those little brains are actually focused on outsmarting you because you're in their territory. But the beauty of it. Honestly David is nature. You're standing I think about you know all things in this world that we live in today depend upon water in order to live. I think about water as being in essence the literal lifeblood of this planet. And you're standing in this water with your feet on the soil and the water's rushing around you and at some point in time if you open yourself to it all things become white and you stand there and you start to realize that you were part of this greater this greater consciousness of existence and this is the fly fishing is just a way to stand in the water without looking ridiculous how your parents are alive . My my mother still is. And she must be extremely proud of what you've achieved. Does she call you all the time and tell you how great you are. She usually calls me to tell me what I need to do a little better. Her thoughtfulness about what our community needs is still very relevant and valid. And so she identifies areas that she says you know Robert you need to think about this and how can you help this one kid or these hundreds of kids in certain ways. So what is the greatest pleasure of your life pleasing your mother or making a great deal of money giving away money. Catching a 30 inch rainbow. OK. All right . Now the greatest pleasure in all honesty. DAVID It's Frankie there's two to liberate a human spirit. And when you're able to liberate a human spirit and see that spirit really become its best self and that person become its best. That is the greatest thrill on the planet. So what would you like to be have people say as your legacy. Eventually you might slow down you might do something else. Would you ever go into government. You know I don't know. You know like all things you look for areas that you can bring a unique solution to and solve a problem. I think the problems I want to solve now are an equalization of opportunity for African-Americans to help them on board into what is the commercial enterprise that is America. You know how do we create sustainable career opportunities for people not just a job or not just a place to go work. And I think it's through the education is through internships so I hope that I'm able to establish and build a sustainable fabric to identify these folks get them educated in a series of schools get them the right internships and put them on a path to not only be creative business leaders but also creative engineers and technologists that contribute to what is the fabric of America . Robert Smith It's a great story a great American story . Congratulations on what you've achieved. Thank you very much . Thank you David .

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The David Rubenstein Show: Robert F. Smith

Private equity founder Robert F. Smith, of Vista Equity Partners, talks about his life and his investing philosophy. His comments come in the latest episode of "The David Rubenstein Show: Peer-to-Peer Conversations," taped March 26. (Source: Bloomberg)

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