Click here for Part II, Part III & Part IV

Ben Schapiro probably knows all there is to investment, and then some more. Last year, QuestMark Partners’ founder partner completed 50 years in a career that has spanned institutional, international and private clients, real estate, corporate finance, M&As and venture capital.

Armed with a degree in economics, Schapiro started his career in 1966 at Robert Garrett & Sons, which later merged into Alex.Brown & Sons. In 1998, he left Alex.Brown to cofound QuestMark, focusing on expansion-stage venture capital. Over the past nearly 20 years, the Baltimore firm has invested nearly a billion dollars in 61 companies, closed on six IPOs and 28 M&A events, and now plans a fifth fund later this year or early next year.

Typically, the Baltimore firm invests in young companies with revenues of between $5 million and $50 million, and a proven technology or product. It then gets closely involved with the product before wringing out juicy returns. It is extremely choosy in its investments and has a rigorous process that ends in a mere 2.5% of startups being offered a term sheet.

In an interview with citybizlist’s Edwin Warfield, Schapiro recounts his career, starting at $5,000 a year, what not working on Wall Street did to his integrity, and the QuestMark investment window. He also spoke about recent investments, one alongside Microsoft and Kleiner Perkins in InsideSales at a valuation of $1.5 billion, and the impending launch of QuestMark’s fifth fund.

EDWIN WARFIELD: QuestMark Partners was founded in 1999. You spent 32 years at Alex. Brown. Can you tell us about the launch of QuestMark Partners?

BEN SCHAPIRO: I was a lucky guy. There was a terrific gentleman named Charles Shaffer who was one of the two people running T. Rowe Price back in 1966. He encouraged me to get into the investment business and I interviewed around. I went to Robert Garrett, I liked the partners and actually it was the only firm that guaranteed me $5,000 a year in compensation and I was newly married and I could not afford to just work on commissions and that was a great ride because there were some terrific senior partners there; both firms had people with high integrity, it was a great way to learn the business, so I mean you know we had Truman Semans and Meredith Boyce and Eddie Dunn and Charlie Stout and Bob Killebrew was there just before me and it was just a great environment.

In 1974, it was not a good market environment and the capital at Robber Garrett and Sons was getting down to about couple of million dollars so we merged or Alex.Brown acquired us. I went over there and that was another excellent experience. The partners there led by Ben Griswold, Sr., it was a phenomenal experience. And you know I often wonder if I had gone into the investment business in New York, what would my integrity be because these two firms were spectacular and we always hear about people in Wall Street getting close to the edge or going over the edge. That never would have happened at Alex.Brown or Robert Garrett. I was very fortunate.

About 18 years ago, we were going to launch a late stage venture capital or expansion capital funded Alex.Brown, the firm was acquired by Bankers Trust. In the summer of 1998, Bankers Trust came to me and said we would like to launch this fund but we do not want any client capital in the fund. It is just going to be the bank's capital and that was a surprise and my partners, and in those days Mayo Schattuck was running the firm, said to me, “you know Ben that is a bad model, it is a bad idea, you got to get out of here, start it, stay in the building, we will invest in the fund, we will support you with telephone space but do not take anybody from Alex.Brown.”

In November 1998, I did convince Tom Hitchner who was co-heading the private placement department to join and we were lucky we went out and we started a firm and we raised our first fund within about six months and were often running, investing in late stage venture capital.

EDWIN WARFIELD: Fund 1 closed in 1999. How large was the fund? Can you provide us with some highlights from Fund 1?

BEN SCHAPIRO: The first fund was a 1999 vintage fund and it was $222 million. We made 17 investments. It was an interesting time. It turned out to be one of the top funds in the country, as measured in the Cambridge universe we were number seventh. We had positive returns and the last time I looked about 95% of the funds raised in 1999 would not return capital to their investors. We returned about one and half times the capital, I think it’s a 12% or 13% net IRR. We were lucky. We avoided 2001, we did not invest, we avoided a lot of investments in the bubble and yet we managed to have some terrific companies in that portfolio, they went public and they continue to be public and successful today.

One of the companies that I think would be interesting to know about is a company called Align or Invisalign that had invisible braces. The company was founded by two students at Stanford Business School who were dating a guy name Zia Mohammad Chishti and Kelsey Wirth who was Senator Wirth’s daughter. The original A investor was Joe Lacob of Kleiner Perkins, a terrific investor and Domain led the B round. Both of those firms knew us. I saw the company. I thought it looked pretty interesting. There was nothing else in the market like this and they asked us to lead the C round and then the company went public I think at about four times what we paid, and we were in it about $4 a share, it is still a public company its trading at about $90 a share, I still own most of my stock. It has been a great ride.

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Edwin Warfield, CEO of citybizlist, conducts the CEO Interviews.

If you're interested in reaching CEOs, please contact edwin.warfield@citybuzz.co

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