by Bill Browder
“Well, none, actually. This is my first meeting.”
He rubbed his chin pensively. “I’ll tell you what. If you can raise at least twenty-five million, I’m in for three. Okay?”
His offer was entirely sensible. He didn’t want to invest in a fund that wasn’t going to get off the ground, no matter how promising the underlying investments might be. All of my meetings in New York went almost exactly the same way. Most people liked the idea and some were interested, but no one wanted to commit unless I could guarantee that I had raised a critical mass of capital.
Basically, I needed someone to write me a giant check to get my start-up off the ground. In a perfect world, that someone would have been Edmond Safra, but Beny had gone completely silent since the meeting at La Leopolda. This meant I needed to find another anchor investor, so I cast my net wide.
A few weeks later I got my first solid lead from a British investment bank called Robert Fleming. Flemings, as it was known, had been successful in emerging markets and was toying with the idea of investing in Russia, so they invited me to meet several members of the senior management team in London.
The meeting went well and I was invited back to make a similar presentation to one of its directors. I returned the following week and was met at the entrance by a security guard, who escorted me to the boardroom. The room looked exactly the way an interior decorator might have thought an old-world, blue-blooded British merchant bank should look. There were dark Oriental carpets, an antique mahogany conference table, and oil paintings of different members of the Fleming family adorning the walls. A butler in a white coat offered me tea in a china cup. I couldn’t help but feel that this whole display of upper-class Englishness was designed to make people like me feel like unsophisticated outsiders.
A man in his early fifties appeared a few minutes later, offering me a limp handshake. He had gray hair and dandruff on the shoulders of his slightly creased, handmade suit. We sat and he pulled a memo out of a transparent folder and placed it carefully in front of him. I read the title upside down: “Browder Fund Proposal.”
“Mr. Browder, thank you very much for coming in,” he said in an English accent that was an exact replica to that of George Ireland, my former officemate at Maxwell. “My colleagues and I are quite impressed by the Russian opportunity you presented last week. To move forward, we’d like discuss your salary and bonus expectations.”
Salary and bonus expectations? Where in the world did he get the idea that I was here for a job interview? After subjecting myself to the vicious snake pit of Salomon Brothers, the last thing I wanted was to be a servant for a bunch of upper-class amateurs pretending to be businessmen and whose main expletive was the word quite.
“I’m afraid there must be some misunderstanding,” I said, keeping my voice steady. “I’m not here for a job interview. I’m here to discuss the possibility of Flemings becoming an anchor investor in my new fund.”
“Oh.” He looked confused and fumbled with his briefing paper. This was not part of his script. “Well, what kind of deal were you hoping to do with us?”
I looked directly into his eyes. “I’m looking for a twenty-five-million-dollar investment in exchange for fifty percent of the business.”
He glanced around the room, avoiding my gaze. “Hmm. But if we get fifty percent of the business, who gets the other fifty percent?”
I wasn’t sure whether he was serious. “I do.”
His face tightened up. “But if the Russian market goes up as much as you say, you would make millions.”
“Yes, that’s the point—and so would you.”
“I’m terribly sorry, Mr. Browder. That type of arrangement definitely wouldn’t fly around here,” he uttered, without a flicker of recognition about how ridiculous this sounded. In his eyes, it seemed that enriching an upstart outsider was so far beyond the rules of the antiquated English class system that he would rather pass on the opportunity than make his bank a fortune.
We ended the meeting on a polite note, but as I left I vowed never to return to one of these stuck-up banks again.
I had a number of other false starts and dead ends over the following weeks before finally coming across a promising prospect: American billionaire Ron Burkle. A former Salomon broker, Ken Abdallah, had introduced me to Burkle, hoping to get a cut of the deal for making the introduction.
Burkle was a forty-three-year-old California bachelor with sandy brown hair and a nice tan. He was one of the most prominent figures in private equity on the West Coast. He had done a series of successful leveraged buyouts on supermarkets and had gone from a checkout bagboy to one of the top Americans on the Forbes list. In addition to his business success, he was regularly pictured in the society pages with Hollywood celebrities and political heavyweights such as President Clinton.
I arrived in Los Angeles on a bright sunny day in September 1995. After getting my rental car and checking in at the hotel, I looked at Burkle’s address: 1740 Green Acres Drive, Beverly Hills. I got back in the car and cruised into the hills above Los Angeles, passing gated houses and front gardens overflowing with flowers. Trees were everywhere: palms and maples and oaks and the odd sycamore. Green Acres Drive was about a mile from Sunset, and 1740 was at the end of a cul-de-sac. I pulled my car up to the black iron gates, buzzed the intercom, and was told to come in and park. “I’ll see you at the front door, Bill,” a man’s voice said.
The gates swung open and I looped the car up a driveway guarded by lines of pointed cypress trees on either side. When I turned into the main lot, I was confronted by the most ostentatious mansion I had ever seen. La Leopolda may have been the most expensive house in the world, but Greenacres, which had been built by the silent-film star Harold Lloyd in the late 1920s, was the one of the biggest. The main house was a forty-four-room, forty-five-thousand-square-foot Italian palazzo, surrounded by manicured lawns, a tennis court, a pool, fountains, and every accoutrement of wealth imaginable. I’ve never been particularly awed by people’s possessions, but it was hard not to be impressed by Greenacres. Burkle was a regular guy from Pomona, California, who had gone from nothing to living like a Saudi prince.
I rang the doorbell. Burkle answered it in person, and standing right behind him was Ken Abdallah. Burkle welcomed me in and gave me the short tour, then the three of us went to his study to discuss the terms of a deal. Burkle was surprisingly relaxed and basically accepted my terms: a $25 million investment for a 50 percent stake in the fund. On the less important terms such as start date, control of hiring decisions, and working capital for the office, he didn’t have much to say. For a guy with a reputation as one of the fiercest guys on Wall Street, he seemed downright laid-back.
After wrapping up, he took me and Ken to dinner and then to his favorite nightclub. I was struck by what a pleasant guy Burkle was. He had none of that Wall Street bravado that I had been expecting. As I was getting into my car at the end of the evening, he promised that his lawyers would draft the contract and send it to me in London a few days later. As I flew home the following day, I felt that I’d cleared the main hurdle to starting my business. I drank a glass of red wine on the plane, silently toasting my good fortune, watched part of the movie, and drifted off to sleep.
As promised, four days later, the fax machine in my Hampstead cottage spat out a long document from Burkle’s lawyers. I grabbed it nervously and started reading to make sure everything was in order. The first page looked fine. So did the second page, the third, and so on. But then I got to the seventh page. In the section entitled “Fund capital,” where it should have read, “Yucaipa1 commits $25 million to the fund,” it read, “Yucaipa will use its best efforts to raise $25 million for the fund.” What did “best efforts” mean? This wasn’t what I had agreed to. I reread the contract to make sure I wasn’t making a mistake. I wasn’t. Burkle wasn’t committing any of his own money, just a promise to raise the money if he could. In exchange for using his best efforts, he wanted 50 percent of my business.
No wonder he was so relaxed in the negotiations. He wasn’t risking anything!
I called his office immediately. His secretary politely told me that he was unavailable. I called three more times, and he continued to be unavailable. I decided to try Ken Abdallah.
“I know you’ve been trying to reach Ron,” Ken said in a breezy California accent, as if he had just wandered in from the beach. “How can I help?”
“Listen, Ken. I’ve just got the contract and it says that Ron’s not actually committing any money to the fund, but just offering to help raise it. That’s not what we agreed to,” I said tersely.
“Bill, I was there and that’s exactly what Ron agreed to,” he said in a much sharper tone, replacing that of the California cool guy.
“But what happens if he can’t raise the money?”
“That’s simple. His fifty percent reverts back to you.”
What did these guys think they were playing at? Burkle would effectively get a free option on 50 percent of my business for making a few successful fund-raising calls. If he was too busy to make the calls or his friends didn’t want to invest, I would be sitting in an empty office in Moscow.
Ken could hear that I was upset, but he didn’t want the deal to crater and risk losing his cut. “Listen, Bill, don’t worry. Ron is one of the most successful financiers in the country. If he says he’ll raise twenty-five million dollars, he’ll raise twenty-five million dollars. He puts together deals twenty times that size with his eyes closed. Just relax. This’ll all work out fine. I’m sure of it.”
I wasn’t sure of it at all. But I agreed to think it over. Perhaps I had been so eager to hear what I wanted to hear that I had imagined that Burkle said he would commit the $25 million. Whatever the case, the way this was playing out felt unpleasant. I would have rejected the deal right away, but I didn’t have any other options and the clock was ticking. The opportunity in Russia was perishable. Once the Russian market started to rise, I would miss what appeared to be a once-in-a-lifetime chance to make a fortune.
Edmond Safra was the one I really wanted to work with, not Burkle, so I decided to give Safra one last try. I couldn’t call him directly, so I tracked down Beny in Antwerp. He picked up on the first ring.
“Hi, Beny, it’s Bill. Sorry I haven’t been in touch for a while, but out of courtesy I wanted to let you know that I’m planning to do a deal with Ron Burkle to set up the Russian fund.”
He was silent for a moment. We both knew this wasn’t a courtesy call.
“What’s that you said? Who’s Burkle?”
“An American billionaire in the supermarket business.”
“But I thought you wanted someone who knew asset management. What does this Burkle guy know about that?”
“I don’t know, but you and Safra seem to have lost interest.”
After another silence, Beny said, “Hold on, Bill. We haven’t lost interest. Don’t do anything until you hear from me. I’m calling Edmond right now.”
I hung up and paced my Hampstead cottage, nervously waiting.
An hour later Beny called back. “Bill, I just spoke to Edmond. He’s ready to do this with you.”
“He is? Are you sure? Just like that?”
“Yes, Bill. He’s offered to send his top guy, Sandy Koifman, to London from Geneva the day after tomorrow. I’ll fly over as well. We’ll sit down and get this done right then and there.”
This was typical billionaire psychology. If I hadn’t had a competing offer, Safra wouldn’t have done anything. But since another deal was on the table, Safra couldn’t resist.
Two days later at 11:00 a.m. I met Beny and Sandy at Edmond Safra’s elaborate six-story town house on Berkeley Square. Sandy was about forty years old, six feet tall, and had swarthy, Mediterranean features. A former Israeli fighter pilot, he had a reputation for taking bold bets in the financial markets, driving Ferraris, and vigilantly keeping Safra out of trouble. As we settled into the library, I could feel Sandy sizing me up. He liked to put everybody through the wringer before doing any business, but Safra had told him to cut a deal and that’s what he did.
The offer was straightforward and fair: Edmond Safra and Beny Steinmetz would put $25 million in the fund and provide some seed money for the company’s operations. Safra’s bank would settle trades, value the fund, and do all the paperwork. Most importantly, if I did a good job, Safra would introduce me to all of his clients, who were among the richest and most important families in the world. In return, Safra would get half the business and give some of his share to Beny for bringing us together. The offer was a no-brainer and I accepted it on the spot.
What made this deal particularly sweet was that Safra had a reputation for doing business only with people whom he and his family had known for generations. It was unprecedented for him to do business with a stranger like me. It wasn’t clear why he had made this exception, but I wasn’t going to question my good fortune. As if Sandy could read my thoughts, after I accepted he said, “Congratulations, Bill. I know Edmond is excited about this, but I’ll be watching you very closely.”
In contrast to Burkle’s contract, the one I received from Safra’s lawyers a week later said exactly what I thought it would say and we signed it shortly thereafter. When I told Burkle I wasn’t doing the deal with him, he lost his temper, swore at me, and threatened to sue. Nothing came of it, but at least I’d finally gotten to see the sharp-elbowed tough guy he was famous for being.
I was now ready to go. I spent the months leading up to Christmas tying up loose ends as I prepared to move to Moscow. Only it wouldn’t just be me moving to Moscow—because I’d met a girl.
Her name was Sabrina and we’d met six months earlier at a loud party in Camden Town. She was a beautiful, dark-haired Jewish girl from North West London, and unlike anyone I’d ever known. Underneath her pleasant appearance was a combination of fiery determination and delicate fragility that I found overpowering. She’d been orphaned at birth and adopted by a poor family from East London, but somehow she’d managed to leave the East End, lose the cockney accent, and become an actress in British soap operas. On the night we met, we left the party together, went straight to her house, and were inseparable from that moment forward. Two weeks later, I gave her the keys to my cottage, and the following day when I returned from a jog, I found two large suitcases in the hallway. Without ever talking about it, we were living together. Under normal circumstances I would have slowed things down, but I was so charmed by her that she could have done anything and I wouldn’t have minded.
After signing the deal with Safra, I called her from the law firm’s office and asked her to meet me that evening at Ken Lo’s, our favorite Chinese restaurant, near Victoria Station, to celebrate. She was strangely sad at the meal and I didn’t understand what was going on. But then, over dessert, she leaned forward and said, “Bill, I’m really happy for you, but I don’t want to lose you.”
“You’re not losing me. You’re coming with me!” I said passionately.
“Bill, if you’re asking me to give up everything and move to Moscow, you have to commit and marry me. I’m thirty-five years old and I want to have kids before it’s too late. I can’t just go gallivanting around the world with you for fun.” Underneath that happy-go-lucky, sexy, crazy woman was a regular Jewish girl who just wanted to start a family, and it all came out that night at Ken Lo’s. I didn’t want to break up, but marrying her after having known her less than a year seemed rash. I didn’t respond, and when we went home she started packing her suitcases.
Her taxi arrived, and without saying a word, she opened the door and awkwardly dragged her suitcases down the gravel path toward the street.
I was so overcome with the thought of her leaving me that I decided, What the hell, in for a penny, in for a pound, and chased after her. I swung around in front of her, blocking her way. “Sabrina, I don’t want to lose you, either. Let’s get married, move to Moscow, and start a life together.” Tears welled in h
er eyes. She let go of her suitcases, fell into my arms, and kissed me.
“Yes, Bill. I want to go everywhere and do everything with you. I love you. Yes. Yes. Yes.”
* * *
1 The name of Burkle’s investment company.
9
Sleeping on the Floor in Davos
Everything was falling into place. I had a $25 million commitment from Safra, I had great investment ideas, and I was about to start an amazing adventure in Moscow with the girl I loved. But one big fly in the ointment had the potential to ruin everything: the upcoming Russian presidential elections in June 1996.
Boris Yeltsin, Russia’s first democratically elected president, was running for reelection, but things did not look good for him. His plan to take the country from communism to capitalism had failed spectacularly. Instead of 150 million Russians sharing the spoils of mass privatization, Russia wound up with twenty-two oligarchs owning 39 percent of the economy and everyone else living in poverty. To make ends meet, professors had to become taxi drivers, nurses became prostitutes, and art museums sold paintings right off their walls. Nearly every Russian was cowed and humiliated, and they hated Yeltsin for it. When I was getting ready to move to Moscow in December 1995, Yeltsin had an approval rating of only 5.6 percent. At the same time, Gennady Zyuganov, his communist opponent, had been rising in the polls and enjoyed the highest approval rating of any of the candidates.
If Zyuganov became president, many people feared that he would expropriate everything that had been privatized. I could stomach a lot of bad things in Russia such as hyperinflation, strikes, food shortages, even street crime. But it would be an entirely different story if the government just seized everything and declared capitalism over.