Brad Gerstner is an amateur pilot who’s logged about 400 hours above New England. He’s also flown (as a passenger) to Morocco on MTV founder Bob Pittman’s private Falcon jet, and has gone heli-skiing with Expedia founder and Zillow (Z) co-founder Rich Barton. “He’s an explorer,” Barton says. This year, Barton, Pittman, and Gerstner met up for Burning Man, the famously libidinous temporary community assemblage in the Nevada desert, for a week of self-expression and survivalist living.
Gerstner also runs a hedge fund he named, fittingly, Altimeter Capital Management, launched in Boston with less than $3 million raised from friends and family in the depths of the 2008 financial crisis. The firm now has almost $1 billion in assets under management. Befitting an adventurer, Gerstner is seeking new professional thrills—taking on multibillion-dollar Silicon Valley venture capital powerhouses Sequoia Capital, Greylock Partners, and Benchmark on their own turf. In July he raised $75 million for a venture fund within Altimeter to invest in startup Internet and software companies. A month later he set up shop on Sand Hill Road in Menlo Park, Calif.
In the past, Gerstner has won big with online-travel plays such as National Leisure Group and Priceline.com (PCLN). He’s so plugged into that world that he’s on the boards of companies that compete against his four-year-old hotel-search startup, Room 77. But he’s largely unproven outside of travel. One of his first private investments was in Kayak, the kind of travel-deals aggregation website he’s championed for years. The deal paid off but hasn’t helped the perception that his expertise is narrow. To add to his challenges, the hottest deals in technology tend to gravitate toward a handful of big VC funds, based in large part on word-of-mouth and long-standing business relationships.
VC funds reap their biggest payouts from their early rounds of investments. That requires ties to business incubators such as Y Combinator, sources at the computer engineering department at Stanford University, or—in rare cases—blind luck. (Consider Accel Partners’ 15 percent stake in Facebook (FB), a $12.7 million investment in 2005 whose value ballooned to about $9 billion.) In early funding rounds, “investors like to work with people they know,” says Michael Kim, managing partner of San Francisco-based Cendana Capital, which invests in venture funds.
A venture fund’s connections are also important to startups, says Andrew Chung, a partner at VC firm Khosla Ventures. However much money the fund itself has to offer, he says, “the main challenge comes down to the value you add as a board member,” in part by knowing the right people.
While working with online-travel and other startups, Gerstner developed an eye for the technology they’re using. That’s what led him to invest in MongoDB, an open-source database software developer that many entrepreneurs favor over Oracle (ORCL). As consumers move their online browsing and purchases to mobile devices, dollars are shifting out of older software vendors and Web companies and toward businesses built for mobile and the cloud, Gerstner says. He’s looking for companies with search software focused on financial advice, shopping, and, yes, travel, betting that ad dollars will start to flow away from Google (GOOG) and toward these specialized apps that offer “a remote control for your life.”
Gerstner, 42, began his career as a securities lawyer in his home state of Indiana. He served two years as deputy secretary of state there before heading off to Harvard Business School and a small venture firm near the end of the dot-com boom. In 2000 he became co-chief executive officer of vacation-bookings company National Leisure Group. The company soon became the leader in online cruise bookings at a time when most cruise lines were “pretty moribund and rather old-fashioned,” says Henry Harteveldt, a travel analyst at advisory firm Hudson Crossing.
From there, Gerstner has leapfrogged between managerial, investing, and board roles for a wide range of online-travel businesses. He’s on Orbitz’s board and helped talk investment firm PAR Capital Management into buying a minority stake. “He has deep contacts and the ability to see the big trends,” says Sam Shank, the co-founder and CEO of room-booking app HotelTonight, who also has Gerstner on his board. Room 77 developed a standalone mobile app before many of its rivals and delivers personalized results, along with photos of available rooms.
When he tried to launch Altimeter in fall 2008, “Everyone thought I was out of my mind,” Gerstner says. Of the money he raised, he bet close to half on Priceline, the U.S. online-travel leader that had a near-death experience in the early 2000s and now trades at $1,058, about 24 times the $45 Gerstner paid.
For his venture fund to push into other technology businesses, Gerstner will have to work hard to build a broader network. He says increased caution around initial public offerings means that for big payoffs, investors need to find hot companies much earlier than they used to. “A lot of companies that would’ve been public 10 years ago are not public today,” he says. Beyond travel, Altimeter has mostly taken stakes in proven players such as Facebook and Qualcomm (QCOM) and is trying to shore up its Valley cred.