EXECUTIVES & ENTREPRENEURS INVESTMENTS

Boardroom Q&A: Darco Capital Founder David Adelman

Adelman discusses business philosophy, investing in sustainability, and why celebrities trust him with their money.

David Adelman is the founder of venture capital fund Darco Capital and co-founder and vice-chairman of FS Investments. He has $24 billion of assets managed and a slew of famous friends in high places who also join him on investments. From LeBron James, Maverick Carter, Bill Gates, Mark Cuban, John Legend, Russell Wilson, Ciara, Tim Armstrong, and many more, they trust the Philadelphia native as both friend and business partner.

Worth a reported $1.6 billion, Adelman’s investments range from FinTech, hospitality, sports, and healthcare to a uniquely wide array of companies focused on climate change and sustainability. He recently teamed up with Legend, James, Carter, and Questlove in a deal with Gates and Cuban to back Neutral Foods, which claims to be the first carbon-neutral food company in the U.S. with a milk product that’s now distributed to more than 1,500 stores nationwide.

After investing $2,000 of bar mitzvah money into his uncle’s college dorm housing company Campus Apartments, Adelman ultimately turned that into a national brand housing 25,000 students with roughly $2.2 billion in assets. Boardroom chatted with the 50-year-old dynamic entrepreneur about his business philosophies, why investing in sustainability matters so much to him, and why all these celebrities trust him with their money.

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Shlomo Sprung: Briefly, what sets Darco Capital apart?

David Adelman: There are obviously lots of venture funds out there that are doing a great job, and there’s definitely a lot of capital. I think we’re trying to show that Darco can be a little bit more flexible than a typical VC fund. We can come in at any part of the capital structure. Series C is kind of generally where we play, but even things like during COVID when some of our companies maybe had issues with their inventory financing, we can provide credit and debt facilities where a typical venture fund can’t do that. So we pride ourselves on not just being there when it’s 80 degrees and sunny, but when it’s cloudy and rainy, that’s when we shine. I think we’re trying to explain to founders that that’s where you need to really think about when picking a partner, picking an investor.

As far as industries go, we’re kind of spread out in a few different areas from consumer. From Campus Apartments to Cred in the FinTech space, where it’s democratizing how the debit card space works, and really affecting how people can up their credit score in a proprietary way. And then climate tech. Climate change is big focus of what we’re doing now. We think that you can do good for the environment and do well for yourself as an investment. We’ve probably made about a half a dozen bets recently that we’re really proud of.

SS: How’d you get started in investing?

DA: I started in the real estate business because I had a gambling problem when I was 11 years old. I was betting my uncle, who’s the founder of Campus Apartments, and I wound up losing playing basketball and I lost my football, baseball glove, and bank book. I had to earn it back going to his real estate office and stacking lumber and sweeping sawdust. That gave me grit, determination, and the ability to see lots of different businesses. My skill set is really one of ideas, putting them together, packaging them, and then letting great people run businesses. That’s my specialty, whether it’s in our real estate business, our investing business, or our asset management business.

Then I went to Ohio State for college. I’m from Philly. I joke that my daughter goes there now, and she’s a lot smarter than I am, so I would not have gotten in there today. I literally graduated college on a Thursday and started working on a Monday, right after. Took no time off. I always wanted to work, make money, work hard, build a business. Campus Apartments was a nice mom-and-pop business in Philadelphia. I had a vision of turning it national, and fast forward to today, we house 25,000 kids with about $2.2 billion in assets.

SS: What was your biggest breakthrough in getting from Point A to Point B? Obviously, there are many stops along the way from turning a mom-and-pop into more than $2 billion in assets.

DA: One is the determination to believe that anything is possible. I was just naive enough to think that I could do anything. When someone said, “That doesn’t make sense,” I’m like, I don’t know why it doesn’t. So I kept pushing. But I think it takes grit, and I believe in grit. I’ll hire people with grit over people that are just smart any day of the week. You gotta have a little bit of both.

Two, is creativity. No might be the first answer, but how do you get to yes? Three, your brand and your reputation. I’ve subscribed to the rule that you get one reputation and one brand, and you should cherish it and treat it properly. If you treat people right along the way, good things will happen when you least expect it.

SS: You have all these billionaires and celebrities partnering with you on ventures, and it seems like sustainability and fighting climate change have kind of been common threads to a lot of these ventures you’re going into. How did that end up being a passion of yours?

DA: What I’ve learned when I talk about my friends who are athletes or celebrities, I found there’s this confluence where business folks like me love the sports and entertainment world. And sports and entertainers, all they want to do is talk to me about business. I want to talk to them about what they do, right? So you wind up spending a lot of time with folks teaching them about venture investing and real estate or private equity and what we can do to help them learn the business. This generation of athletes and celebrities is really smart, really astute, [they] really want to invest their money wisely. The generation before, I think you saw lots of athletes make big money, but lose big money. I think this generation is very different, very well educated on the opportunities and want to learn and ask questions.

For me, if I’m doing deals, I’ll share with the folks that I’m friends with [and ask if they] want to come in. The one we just did with Neutral Foods, John Legend’s a friend of mine, he’s a business partner. I told him why I liked it, no pressure, here’s what I’m putting in. I think what’s important to note is that in any one of these deals, I always make sure that I have the largest check in it compared to any of my friends coming in. In case something goes wrong, I want to know that I lost the most. So for me, if I can bring good deals to my friends, teach them about ventures and investing, I think it’s a win-win and we’re doing something good for the economy, the climate. Why not?

Photo courtesy of David Adelman

SS: When did you first start your biggest check philosophy?

DA: My first big foray into private investing was about eight years ago with a company called Wheels Up in the private aviation  space. When that was started by the founder, Kenny Dichter, I agreed to lead the Series A.

As I went to folks and said here’s why I like it, here’s why I’m doing it, for me it was telling people there’s always a chance that these things don’t work out. Fortunately for us, eight years later, we’re a public company with $700 million on our balance sheet. I just want to know, for me, if something goes wrong then I took the pain in the worst way.

SS: I’m sure that’s backfired in some cases, but that’s probably how it is as an investor.

DA: Look, I think everyone needs to be a big boy or big girl when they make investments, especially in the alternative space. If there was certainty, everybody would do it and everyone would win. I feel fortunate that we’ve had a lot more winners than losers. I think that comes with experience and discipline of when to say no to deals.

SS: Do you learn more from when deals go really well or when they flop?

DA: Really smart question. You learn it both ways. When they flop, my judgment if a deal doesn’t work out, I say, knowing everything I know, would I still make the same investment? Was there something I didn’t know that I should have known? And we keep a list. If there’s a deal that doesn’t work out, what didn’t we know? Did we ask the wrong questions during diligence? What did we miss?

I certainly learn from the losers. And by the way, there’s some winners that we’ve been in where I look back and I say there are things about that management team that maybe they were luckier than they were good.  And I want to learn from that next time around when I’m making a bet on the founder. Sometimes, I’m like, these guys are great, and even if this deal didn’t work out, that founder is so impressive. I’ll back them in this next deal.

SS: With Neutral Foods, you have John Legend, LeBron and Mav, Questlove — Academy Award winner Questlove is cool to say — and you link them up with Bill Gates and Mark Cuban. How do you bring all those people together?

DA: It comes from a place of respect. People respect my acumen or experience or our deal flow and say, “If you see anything interesting, let us know.” I never go out there just widely soliciting to raise capital on behalf of a company. It’s not what I do. I’m in the investing business, not the capital-raising business.

But in business today and the social world, if I’m sitting with Mav having a tequila, we’re both investors in Lobos— me, him, and LeBron— and we’re talking business, I’ll ask, “What are you guys seeing that’s interesting?” When you’re sharing stuff people might not have an expertise in and ask why we would invest in the first carbon-neutral food company in the country, I said, here’s the three reasons I like it.

I think it’s about conversation. It’s about deal flow sharing. And it’s the comfort that you have in one another. People know that I’m putting my money where my mouth is. I’m not some broker. I’m a principal. Which comes back to the biggest check theory, that of everyone that you mentioned, I have by far and away the largest amount of capital in the deal.

SS: This is a simple question and not to come off as condescending or whatever, but why do all these people trust you?

A: It’s a great question. One, I know all these people. John Legend, I’m a partner in his production company Get Lifted. So John’s known me for a long time. Mav and I have known each other for a long time. I’ve been able to give him advice on certain things. He’s given me advice on things. So, I think trust comes out of friendship. You know when you can trust somebody when you can’t. When you look at other guys in the deal like Kevin Love or Tobias Harris, they’re just friends of mine. We’re shooting the shit, talking about what we’re doing. And I think people just like learning from each other. I never solicit. I just say, “This is what I’m doing.”

SS: All these people have different business philosophies or business styles. How do you go about bridging those all together?

DA: The common thread is where do you see the future? And regardless of someone’s management style, investing style, or personal beliefs, where do you believe the future is going? Which is, for me, this focus from my business perspective is climate is really important, whether it’s carbon capturing— we have a company in our portfolio called Remora. It makes sense, but you say why hasn’t this been done before? These guys created a device that goes on the back of 18-wheel trucks and it captures the carbon they’re putting out. We’re in Fleetzero, where we’re replacing diesel powered big container ships that go across the ocean with battery-operated ships with electric batteries. Once you hear about an idea like that, it just makes sense. Any elevator pitch for any investment, whether you’re doing it or Rich or KD are doing it, it’s gotta make sense and it’s gotta resonate. And if it can resonate, then it’s gotta be easy enough to understand and explain.

SS: With Neutral Foods, it’s now nationally distributed by Whole Foods. Why choose now to make this big push in trying to publicize the company?

DA: Now they’ve kind of come out of hiding. We’re in 1,500 stores, Whole Foods, Target, Sprouts, a ton of regional chains. We think that now is the time, no differently than 15, 20 years ago, you’d have a category called non-GMO or organic. When organic food came out, people were like, “What is that?” And now there’s a shopping aisle for organic foods. I believe the evolution is you will see a neutral aisle in the supermarket. And our surveys show that 54% of all Americans are climate-concerned or climate-anxious.

Photo courtesy of David Adelman

We started in the milk aisle, so when you walk down, you’ll see a beautiful yellow box that pops in the aisle. We’re headed to put out a butter by year-end. Ninety-three percent of everyone’s refrigerator has a dairy product in it. So we want to start to be everything dairy, and in the future, you could think of other things that might come from a farm that we might get into.


SS: How did you get into a sustainable fashion brand with Russell Wilson and Ciara, The House of LR&C?

DA: Russ and Ciara are friends of mine. I met Russ years ago when I got involved in Wheels Up, and now Russ is an investor. He’s been an ambassador. We’ve become good friends. When he was starting this business, kind of the same story: he asked me for my advice. “Here’s why I like it. Here’s what I’m thinking. Here’s why I think we could be different. Here’s our category.” I started with advice, then I put in a little capital. He asked me for a little more advice. I put in a little more capital. And then he said I really need your brain on the board. And I loved what he was doing.

And by all means, it’s not because I’m a fashion expert. But I am a good critical thinker when it comes to corporate structuring and things like that. And, the smartest thing he did was partner with Christine Day, who was the former CEO of Lululemon, and she’s terrific. He knew where his vision would start and end, and having a partner like Christine, who is the CEO who runs the day-to-day business, and then filling the board with people with a bunch of different specialties is the differentiator there.

SS: What are common threads in terms of successful companies? 

DA: Good leadership at the top, good vision, good execution.

SS: Any final thoughts?

DA: My story is that I like building great teams. I like mentoring leaders and having a good time. And again, if we could make a difference in the world and make a little money along the way, that’s a win-win.

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