A Man with a Mission
As a young entrepreneur in Mason City, and later as a venture capitalist in Des Moines, John Pappajohn helped shape Iowa's future.
Written by John Shors II. Contributed with permission from The Des Moines Business Record, July 7, 1997.
All good stories must have a beginning. For John Pappajohn, that beginning came when his father landed on Ellis Island after a long voyage from Greece. Though he spoke no English, and possessed few skills and even less money, the immigrant was full of dreams. He was given the name Pappajohn and told to go forward. And so he did, settling in Mason city, working as a laborer, then starting a neighborhood grocery store. He left Iowa to marry in Greece, but soon returned with his wife and new born son. The oldest of three boys, John would grow to become one of Iowa's greatest success stories: an entrepreneur who put Iowa on the venture capital map; a man who helped to create, fuel and oversee dozens of successful companies.
The Young Entrepreneur
Back in 1935, things were different. John was 6 and could speak little English. At the request of a caring teacher, he repeated kindergarten. He was already working, helping his father run his grocery store. In his spare time, he explored the town dump, gathering copper, iron, brass and rags to sell.
Today, sitting in his conference room on the 21st floor of the Financial Center, the memories bring a smile to his face. "By scavenging, I could make 50 cents or a dollar a day during the Depression. Those were my first days as an entrepreneur. They taught me a lot."
Pappajohn's father died when John was 16. Because his mother spoke no English, and his brothers, Socrates and Aristotle, were too young, running the store fell squarely on John's shoulders. "I had to mature very quickly," he says. "I took over the store. I had to order, sell butcher, do whatever was needed to make it work."
Pappajohn graduated from high school shortly thereafter. He and his brothers took turns going to college and operating the store. The oldest sibling studied at North Iowa Area Community College in Mason City for two years before transferring to the University of Iowa. There he worked in a butcher shop and studied business administration.
Entering the Work Force
His days of school behind him, Pappajohn returned to Mason City. He sold life insurance for a short time before deciding to strike out on his own. In 1961, at the age of 32, he moved to Des Moines. With the help of a partner, he raised $1.5 million and started Guardsman Life. Working out of the Insurance Exchange Building, Pappajohn made inroads in the insurance industry. But he wasn't content. Still an entrepreneur at heart, he began to research the possibility of becoming a venture capitalist. The field was just developing. Iowa didn't have a venture capitalist and Pappajohn sensed an opportunity. "Following the advice of a friend, I called Warren Buffett up in 1969," he says. "He actually said it was a bad time to become a venture capitalist. But I went ahead and did it anyway. "It turns out that he was right. With the high interest rates of the '70s, there was very little venture capital activity. I did a lot of mergers and acquisitions, and sold a lot of companies."
Pappajohn got his first real break in 1972. Officials at Kay Laboratories, a floundering San Diego company, asked him to find fresh capital. He agreed, and helped to turn the company around. When it was sold five years later, Pappajohn earned his first million.
The experience gave Pappajohn a taste for the health care industry. More important, it introduced him to his first referral base. "Three public companies spun out of Kay Laboratories," he says. "One of them I helped found with Kay's former VP of sales and marketing. That firm, Caremark, was the first home health care company in America." Caremark later sold for $582 million. While this was going on, Pappajohn was in the process of starting eight other companies in San Diego. Each eventually would go public.
"I've made my money by being the first in markets," he says. "As a venture capitalist, you have to seek out the cutting-edge companies. You get in as early as possible. That way you make a lot more headway and profits. "You certainly don't make any money by being involved with mundane companies. What you do is develop a technology and then license it. That's why I'm working with the University of Iowa and Iowa State."
Pappajohn owns portions of 38 companies. He plays an active role in each and makes certain he knows the strengths and weaknesses of each company's president. "In this business, you bet on people even more than products," he says. "You give people great opportunities. But you also have to find out who is willing to pay the price to succeed. That sacrifice comes from less time with family, less time outside of work. If people aren't driven, you end up with average deals, and mediocrity has no place in venture capital."
Pappajohn practices what he preaches. Though 69, he still works Saturdays and Sundays, putting in 70 to 80 hours each week. He has no wish to retire, though he admits that someday he might do fewer deals. At almost any given time, Pappajohn is in the process of putting together deals. When his phone rings, he doesn't waste much time with pleasantries. He's seemingly driven by an Intel chip, with facts and figures churning from his lips.
Over the last 27 years, Pappajohn has averaged a 68.1 percent return on his investments - the best in the venture capital industry. According to him, no one else is even close. His record is obviously something he takes great pride in.
Venture Capital in Iowa
Sitting in Pappajohn's conference room, one has no sense of being overwhelmed. The furnishings are functional and spartan. No awards hang on the walls, no ornamentation of any kind. Nothing leaves an impression, save the raspy voice of Iowa's best-known venture capitalist.
"I think that Iowa companies stack up very well with their national counterparts," he says. "What we seem to be lacking, however, is know-how, and the psychology that says 'I can do this.' "Yes, money is always hard to get, but if you're creative, you can do it. It's important not to give up. I really believe that whatever the mind can conceive, it can achieve."
If Pappajohn appears to be driven, it's because he is. "I don't lose companies," he says matter-of-factly. "If I make a bad deal, I sell or merge the company and still get a nominal return. But in this business, the typical investment doesn't do it. You need to hit extraordinary returns." Despite his hands-on approach, Pappajohn has no desire to be the chairman of any of his companies. His role is to make money for his shareholders.
"I want to give a lot of money away," Pappajohn says. "That's a main part of why I'm still working. I'm in my prime in this business, and the best way I can meet my philanthropic goals is to keep putting together good deals."
In recent years, Pappajohn and his wife Mary have given more than $10 million to finance projects at the University of Iowa. In 1989, they donated $3 million to the University of Iowa Hospitals and Clinics. Three years later, they contributed $4 million to aid in the construction of the Pappajohn Business Administration Building.
"I've always felt life has been generous, and my philosophy has been to give back much of what I received," he says. "The logical place for me was where I got my education."
Recently the Pappajohns gave $4.75 million to create a network of entrepreneurial centers in the state. Iowa, ISU, UNI, Drake and North Iowa Area Community College each received a portion of that sum. "The intent is to train students, whether college or elementary, in how to run a business," Pappajohn says. "Each center has a professional staff who will help the students, as well as give advice to business people across the state.
"Iowa was in desperate need of this. The centers are terribly exciting. They'll create success stories and empower people. Each center has its own specialty. For example, University of Iowa's center will focus on business, engineering and the health sciences. On the other hand, ISU's center will concentrate on technologies pioneered by students and faculty at its colleges of agriculture, engineering and veterinary medicine. Pappajohn expects the centers to create 500 to 1,000 new business in the next five years.
"I've always had a dream," he says. "And this dream was to help Iowa become the most entrepreneurial state in the country. We have the great working mentality. Now all we need to do is improve our skills and have access to more capital.