To Pixar and Beyond

by Lawrence Levy

  “I thought we need clout in entertainment,” Steve said.

  “We do. If they’re interested, we’ll need to find an investment bank to join them that does know entertainment. It’s a long shot, but I think it’s worth a call.”

  “Give it a try,” said Steve, a little less than enthusiastic.

  The founder and chairman of Robertson Stephens was Sandy Robertson. He and my former boss, Efi Arazi, were good friends, and I had met Sandy a number of times. He was the ultimate gentleman banker, very polished, with a West Coast daring and swagger. He was also an influential and important figure in San Francisco. I knew he wouldn’t be involved in any of the day-to-day discussions with Pixar, but one word from him and his team would take us seriously.

  He was delighted to hear from me.

  “How’s Efi?” was the first thing he asked.

  “He’s great,” I said. “He’s off on some new ventures now. I know he’d love to see you.”

  “And what are you doing now? I hear you’re at Pixar, working with Steve Jobs.”

  “That’s right,” I said. “As a matter of fact, that’s what I’m calling about.”

  I recounted to Sandy a summary of the Pixar story.

  “Of course we’ll take a look,” he said. “This sounds thrilling. We’ll be right back to you.”

  Within a few hours I received a call from two investment bankers at Robertson Stephens, Brian Bean and Todd Carter. They wanted to learn as much about Pixar as quickly as they could. I arranged a time to visit them right away in their swank offices in San Francisco’s financial district.

  Brian was the senior of the two, a delightful character who wore colorful suspenders and who loved art, culture, and new challenges. Todd was more junior and would be the person on the ground, the one who would pull together all the details. Todd looked like the all-American boy, tall, blond, handsome, the kind who had probably been voted “most likely to succeed” in high school. He was respectful and articulate. I liked both of them right away, although I couldn’t imagine what Steve was going to make of them—endearingly quirky Brian, and Todd who looked like he was barely out of college.

  I invited Brian and Todd to Pixar, where we gave them our dog-and-pony show and took them on the tour, just as we had done with Goldman Sachs and Morgan Stanley.

  “This is fantastic,” Todd Carter gushed, “just fantastic.”

  “Agreed,” said Brian. “I love what you’re doing here. It’s so authentic, so creative. It’s different from what we usually do. But we like different.”

  There it was, the West Coast swagger I hoped to find. I could swear these two bankers had caught the Pixar bug, and they might just be crazy enough to run with it despite the risks. But I recalled we had gone this far with Goldman Sachs and Morgan Stanley. It was the next step that we needed, the step where they really started to piece together what Pixar was all about.

  Unfortunately, Steve was skeptical.

  “I’m not sure about those guys,” Steve said. “I liked them okay, but could they really pull this off? Do they have the clout we need with investors?”

  “If they say they can pull it off, they will,” I said. “Larry has done a lot of deals with them. You could check with him. They know what they’re doing. But first we have to get them on board. We’re not there yet.”

  Steve remained worried about whether they’d be good enough. I was worried about whether we could get any investment bank interested at all.

  The next day Todd Carter gave me a call.

  “We love Pixar’s story,” he said. “We want to get into the details. I also want to bring along one of our financial analysts to help with that. Our only issue is we don’t have an analyst who’s an expert in the entertainment industry. But one of our digital media analysts, Keith Benjamin, is really interested in this. He’d love to learn more. How would that be with you?”

  How would that be with me! I just about cried. Todd was apologizing for not having an entertainment specialist, only a media specialist who wanted to learn more about Pixar. I had never expected they would have an entertainment analyst. He was handing me a lifeline and apologizing because it wasn’t in my favorite color.

  “No problem,” I said. “No problem at all. The entertainment business has been new for me too. We’ll bring Keith up to speed.”

  They all came over to Pixar. Brian Bean, Todd Carter, and Keith Benjamin from Robertson Stephens; Steve, Ed, Sarah Staff, and me from Pixar. We sat in a conference room and finally had the meeting I had been waiting for.

  We walked the Robertson Stephens team through the details of Pixar’s vision, business plan, and risks. We told them we were aiming to change entertainment history in a way few companies had ever had a chance to do, and we described the four pillars it would take to make it work: raise the money to finance our films, expand the studio to handle more productions, make Pixar a worldwide brand, and increase our share of film profits. But there were risks. Big ones. Wall Street would have to understand that.

  “Thank you,” Brian said sincerely. “This has been immensely helpful. Give us a couple of days. We’ll be back to you.”

  Later that day I received a call from Todd Carter. He thanked me for the meeting and wanted to explain the process by which they would make their decision.

  “The decision is made by our Commitment Committee,” he said. “That comprises all our top people and they make the final decision on every deal.”

  “Any idea how it looks for Pixar?” I asked him.

  “I wish I could say,” Todd replied. “You’re very aware of the challenges in Pixar’s business model. We’re excited about Pixar, we love the vision, but we have to be certain our investors can tolerate the risks. My personal recommendation is that we go for it, but it isn’t my decision. I think it’ll be close.”

  There wasn’t much there to make me feel comfortable. I could only sit and wait. It was hard to be patient, though. I hadn’t expressed it to Todd, but by this point I was flat out of options. If Robertson Stephens’s committee voted thumbs down, our chances of an IPO anytime in the near future would truly evaporate.

  Two days later Brian Bean called.

  “Our Commitment Committee made its decision,” he started.

  I held my breath.

  “We’re in,” Brian told me. “We think our investors will go for this. We know we have to get them on board for the long term, but there’s enough that’s exciting here that we think they will. We’d be honored to be the lead banker for Pixar’s IPO.”

  I put down the phone with a lump in my throat. Lightning had struck. This was huge. My first call was to Steve.

  “Robertson Stephens is on board,” I said.

  “That’s great news,” Steve said. He sounded excited but also cautious. I think he was still getting used to the idea of working with an investment bank he really didn’t know.

  “I need to give them a signal that we want to make them the lead on the deal,” I went on. “We’ll need others involved, but we have to give them the lead now if we want to go through with this.”

  “I want to talk to their CEO first,” Steve said.

  The CEO of Robertson Stephens was Mike McCaffrey. I didn’t know him, but he had a reputation as a great banker and a terrific guy. I arranged a meeting for a few days later. Todd Carter and Mike McCaffrey came over to Pixar to meet Steve, Ed, and me. We all liked Mike immediately. He was tall, athletic, and articulate. He came across as sharp, grounded, and very respectful toward Pixar and Steve. After the meeting, Steve pulled me aside.

  “I have one request,” he said, “and it’s nonnegotiable.”

  “What’s that?” I asked.

  “I want Mike McCaffrey at every stop on our road show.”

  My heart sank a little. This was crazy. The road show was when the bankers would arrange a two-week or longer whirlwind tour for Pixar to meet potential investors in every corner of the country, and even in some corners of Europe. It was a grueling slog to share our
story with as many investors as possible, and it was unheard of for the CEO of an investment bank to go on a road show. Ushering us from city to city to meet investors was considered the grunt work for the junior bankers. Mike McCaffrey probably hadn’t done that kind of work in more than twenty years. He was running the entire operation of Robertson Stephens.

  I wanted to say to Steve, “Are you kidding?!” but I stopped myself. As irrational as this demand was, this wasn’t the fight to pick. Steve needed to feel confident in our bankers, and if this was the only way to get him there, I would give it a shot.

  “I’ll ask,” I told him quietly.

  Somewhat sheepishly I explained the predicament to Brian Bean and Todd Carter.

  “I realize this is unconventional,” I said. “But Steve has a lot at stake here. It is crucial that Steve is excited and on board. He liked and trusted Mike. It will give him the confidence that this will go well. Would you mind asking him?”

  They did. And Mike said yes, in what for me was one of the greatest acts of business sportsmanship I had seen. Even Brian Bean and Todd Carter seemed surprised. Mike McCaffrey, the CEO of one of the tech industry’s preeminent investment banks, was going to jump into planes, trains, and cars and join Pixar on what would undoubtedly be a high-pressured and exhausting road show. I never asked him why he did it, but I was pretty convinced it was a gesture of pure deference toward Steve. Steve may have been down and out for a while, but he still commanded respect in Silicon Valley circles. This must have been Mike McCaffrey’s way to honor that.

  “Mike’s in,” I told Steve excitedly. “He said he’d join us on the road show.”

  “Fantastic,” Steve replied. “Then we have an investment bank to lead the deal.”

  For the first time in a long while, I felt it was actually possible that the wind had begun to shift.

  14

  Hollywood Cred

  It did not take long for my excitement at securing Robertson Stephens as the lead investment bank to wane a little. We still had no one who would certify Pixar’s credibility as an entertainment company, and we needed that if we were to convince the investment community we had what it took to make it.

  Morgan Stanley and Goldman Sachs would have been perfect because they had stellar reputations in Hollywood. But Robertson Stephens was unheard of in those circles. I liked Keith Benjamin, the Robertson Stephens analyst who would write the reports on Pixar that Wall Street would read. He was thoroughly engaged in Pixar, inquisitive, smart, and enthusiastic. But few in the entertainment industry would know him. We needed somebody whose word would give Pixar immediate credibility in Hollywood.

  I was sitting in my office one day when I was struck with an idea. I had read and reread Hal Vogel’s book Entertainment Industry Economics. I remembered that his experience in entertainment came from being an industry analyst. I checked the book, which said he had been the senior entertainment industry analyst at Merrill Lynch since 1977. He had also been ranked as a top entertainment industry analyst by Institutional Investor magazine for several years in a row. This would make him one of the best, if not the top, entertainment industry analysts on Wall Street.

  I didn’t expect that Hal Vogel would have much interest in Pixar, especially because it was his book that described the perils of financing film companies through the stock markets. Still, he’d know the field well, and maybe he’d have some ideas. I thought it might be worth talking to him.

  I gave Todd Carter at Robertson Stephens a call. Todd knew I was on the lookout for some entertainment clout in our deal and he was eager to help. It didn’t take long for Todd to discover that after seventeen years at Merrill Lynch, Hal Vogel had left just a short while earlier, at the end of 1994. He was now managing director and senior analyst of entertainment, media, and gaming at Cowen and Company, a boutique investment bank based in New York that I had never heard of.

  “Would you like me to reach out to him?” Todd asked.

  “That would be great,” I responded. It was not uncommon for the lead investment bank to solicit interest from other banks. That would spare me the embarrassment of taking any rejection directly.

  “Do you know anything about Cowen and Company?” I asked Todd.

  “Not a lot,” Todd answered. “They’re a very small player in the IPO business but they’ve gotten more active in recent years. They’re unknown out here.”

  Todd placed the initial call to Hal Vogel, who indicated he was happy to have a conversation. I didn’t know if that was good or bad, but at least I hadn’t been dismissed out of hand. We arranged a time to talk over the phone. I began the conversation cautiously.

  “Thanks so much for talking,” I said. “I learned a lot from your book. I know you’re not high on film companies raising capital in the stock markets, but I think it’s Pixar’s only shot. If you have a few minutes, I would love your advice on how to go about getting entertainment coverage for Pixar.”

  This was Hal’s chance to remind me how terrible an idea this was. But instead he replied, “I’d love to learn more. I’ve had my eye on Pixar from afar.”

  Much less painful than I was expecting. I recounted Pixar’s story to Hal over the phone.

  “I love it,” Hal said. “Just love it. You’re doing everything that the entertainment industry needs.”

  “What?” I thought to myself. I had my armor on but no barbs were coming my way. In fact, Hal could not have been more positive, jovial, and friendly.

  “What do you mean?” I asked him.

  “Technology is a huge driver in entertainment,” Hal explained. “Companies that combine great story, technology breakthroughs, and seasoned management will lead the way into the future. Pixar has all the ingredients. Believe me, it’s rare. I’d love to be part of this. Maybe Cowen can be part of your IPO.”

  If Hal had seen me at that moment, I’m quite sure he would have been shocked to find my jaw on the floor. He saw in Pixar something we barely saw in ourselves, and certainly something Goldman Sachs and Morgan Stanley had not seen. If Hal Vogel thought what we were doing at Pixar was important, well, maybe it was!

  This was a far, far cry from our dismissive rejection by Goldman Sachs and Morgan Stanley. Here was one of the top analysts in the field saying we had all the ingredients for success. Moreover, he wanted in on the deal. If Cowen and Company was involved in Pixar’s IPO, Hal Vogel would play a pivotal role in educating investors about why Pixar mattered in entertainment.

  First, though, I had to convince Steve. If I had been worried that Steve didn’t know much about Robertson Stephens, I could be certain that he had never heard of Cowen and Company, nor probably had anyone he knew. I’d already stuck my neck out with Robertson Stephens. Now I was asking Steve to trust Cowen and Company on the strength of one entertainment industry analyst.

  I thought the best place to start was to have a meeting. I described to Steve Hal Vogel’s reputation and suggested it might be great for him and the banking team at Cowen and Company to come for a visit. We set up a time to meet them at Pixar.

  Adele Morrissette was head of digital media investment banking at Cowen and Company. She visited Pixar with Hal Vogel and we hit it off straightaway. Adele was bright, engaging, easy to talk to, and straightforward. She saw Pixar as a great story and as a great opportunity for Cowen and Company. She thought that with Hal behind it, investors would feel better about the risks and would be more likely to give Pixar a chance. Hal remained just as enthusiastic about Pixar as in our first conversation.

  “What do you think?” I asked Steve after the meeting.

  “I like Hal,” Steve said. “He knows his stuff, and he gets Pixar.”

  After the fiasco with Goldman Sachs and Morgan Stanley, I think Steve really appreciated that.

  “But,” Steve continued, “they’re a complete unknown for IPOs. Do we need them on board to get Hal to cover Pixar?”

  It was a good question. Analysts at investment banks could cover any companies they wanted, not j
ust their clients. It was possible that Hal would write about Pixar even if Cowen and Company was not involved in the IPO, but for a new public company, coverage by a top analyst was notoriously difficult to gain.

  “You’re right,” I said. “Hal could write about Pixar even if Cowen isn’t involved. It’s a big risk, though. We have to start the ball rolling with entertainment coverage in order for Pixar to be taken seriously. I wouldn’t take a chance on it. I’d rather see Cowen in on the deal and know that Hal will cover Pixar.”

  “Will they take third position on the deal?” Steve asked.

  “I’m pretty sure they will,” I replied.

  It was fairly typical to have three investment banks involved in an IPO. There was no magic number. Some IPOs used two investment banks; some used four or more. It depended on the size of the offering, access to investors, and the need for specialized industry expertise. The Pixar shares sold in the IPO would be allocated among its investment banks. Giving Cowen third position meant that they would have the smallest allocation, which made sense because they would likely have a smaller roster of clients who invested in IPOs.

  “If they’ll take third, it’s okay with me,” Steve said. “We’ll still need someone else in second position.”

  I was more than pleased. I was sure Cowen and Company would go for it. It meant that Hal Vogel would be Pixar’s analyst.

  Lightning had struck again.

  Cowen and Company was happy to be involved, and they assigned a delightful young banker named Jill Dallas to help with the deal. With that, we now had two investment banks, one of which had an analyst whose credentials in the entertainment industry were impeccable.

  By now I felt I had extended myself quite a bit with Steve. I understood full well that it was not his dream to take Pixar public with a boutique tech bank and a small New York bank that no one in Silicon Valley knew. To him, this was the backup plan. To me, this was our shot at actually pulling it off. I felt confident for the first time in a while, and I wanted Steve to see it.