The following is the video transcript of Smith’s NAIC interview:

[0:00-2:45]
Robert L. Green: All right, so now we’ve gotten through college, uh. Now let’s let’s get to into the career, Robert. So you did not start out as an investor. A lot of people believe that, incorrectly, Robert Smith has spent his entire career as an investor. You had an entirely different career. And you were good at it and successful at it, and you loved it. Talk to us about how you define success in your initial career.

Robert F. Smith: Sure. I mean, I was a chemical engineer. Um, you know, and growing up, uh, in going through college, you know, I started to realize the importance of even something today was the importance of an idea, something different, something new. And I thought the greatest thing in the world that you could ever do was come up with an idea that that no one else had come up with, right, in the history of mankind.

Uh, and so, in focusing, in like areas called applied research and development, um, and earned a couple of, you know, U.S. and European patents and developing ideas and processes and things that no one else had come up with. And, to me, I thought that was one of the greatest accolades, uh, frankly, on the planet.

Uh, and then, one thing happened. A Black media publication called Black Enterprise started to really produce, uh, materials about Black business people. Um, and me and a few of my, you know, fraternity brothers, who were actually in in Buffalo, New York, and other places at the time, would read these and we sit down, and we talk about, who are these people, um, on the covers of these magazines.

People by, by the name of John Utendahl and Ray McGuire and, you know, and, uh, you know, Stan O’Neal and these sort of folks. And, man, and, you know, understanding what it is that they did and how they did it. And so we started to do our own research and trying to figure it out. And so the importance of seeing us, our images, who we were, you know? Um, and guys like Reginald Lewis comes on the scene and what he’s doing.

And it started to show us, uh, to me in particular, um, you know? I thought about my life as a contribution in an intellectual capacity, uh, in the work that I did as an engineer, but I started to understand the importance of capital.

You know, I didn’t understand what capital really meant because, you know, no one in my neighborhood had capital.

Green: Right.

Smith: Um, and, uh, so I started to understand that. So I went back to business school, um, got educated in in that, and then, you know, John in particular and and Ray in particular helped me understand that the importance of capital and how it shapes, uh, communities and how it shapes, uh, you know, an opportunity set.

And that’s when I went off, uh and joined, uh, Goldman Sachs, uh, in the M & A department. And I realize that mergers and acquisitions, in particular, think about the highest levels of capital structure. It’s when, you know, assets are exchanged, uh, between owners. Um, it’s board-level discussions and CEO-level discussions that that occur. Uh, and it reshapes the way that capitalism is is is deployed and engaged, uh, across the planet. And I thought, man, that’s that’s a good place to really learn how this works. And.

Green: So.

Smith: Go ahead. Sorry.

[2:46-5:23]
Green: I’m so sorry. So so you, again, successful in chemical engineering. Um, you had great access to almost peer mentors in terms of Ray McGuire and John, you know, a little bit ahead of you. But but, clearly, guys that we’re in a different field that you respected and and listened to. You get into the almighty Goldman Sachs, right? Generally regarded as as, you know, the largest and and and most prestigious of the investment banks. You do extremely well there.

You, I’m gonna tell the story for you. You, uh, you get, uh, the opportunity to go out to, uh, the west coast, Silicon Valley. You you open that office. You become one of their most, uh, prolific bankers in the enterprise software space. You may, I know you made a lot of money there. I know you did well there. I know you had a great lifestyle there. I want to get to this notion of why it wasn’t good enough to just stay there, right. Where does the fire come to leave something so good?

Smith: Yeah. And, you know, you, Bob, you and I’ve talked about this dozens of times. So you know it’s this whole idea of risk-taking is free on the one hand right, you know. To to first start off, one of the the the things that I always thank John and Ray and others for is they made themselves available to me, uh, when I was asking kind of, you know, uninformed questions.

Green: Sure.

Smith: Um, and they would take the time, I’m sure, and chuckle a little bit about these questions from this engineer who’s asking about capital, capital structures; how does this actually work; and, why would they they do that form of a deal… uh, to help me understand that a little bit better.

Uh, I was invited, uh, to go out as you said to San Francisco by Goldman, uh, to, you know, create what now became our tech group. I was our first kind of M & A person on the ground, and I, you know, had a chance to engage with companies like, you know, Apple Computer and Microsoft and, you know, Texas Instruments and Hewlett Packard and little companies called Yahoo and eBay, uh, back in the early days of tech. Um. And really started to understand more and more about how capital was leveraged, uh, and used in technology.

Green: Yeah.

Smith: And then I started to think about a couple of my experiences, uh, as a engineer. One of the experiences, uh, in the early days, when I was in Buffalo, New York, uh, uh, and I was actually implementing a a what’s called a a, you know, programmable logic controller into a a a production facility. And so this is the introduction of computing technology into a plant. And, when we were done with that work, uh, we, in essence, were able to, uh, increase the productivity of that plant by about 26 percent. And I want you think about that. That’s basically a whole shift, right.

Green: Right.

[5:24-8:52]
Smith: And just for people’s explanation, you know, when you’re controlling a plant in analog, it kind of operates like this, right. You know, temperature goes up. You need to adjust it. Pressure goes down, you know. You adjust it. But when you put a computer system in place, you know, you actually will adjust it thousands of times a second, in essence. So everything that was under the curve is waste, and if you can eliminate all that waste, that gives you more productivity. So it’s high-level, right.

But what that shows you is the power of computing. And now computers are starting to be pushed, uh, not just on the pl.., in the plant, but now being pushed into the offices. So that same sort of efficiency, which being implemented by, you know, the McKinseys and the Banes and those sort of folks, uh, in the world, is now starting to hit the office.

And the whole idea and the thought is well, you know, to what extent if you actually now drive enterprise software, which is in this case, into the environments of businesses, how efficient can those businesses become? Which created a massive uplift in earnings in the companies in the late 90s, or in the early 90s, believe it or not. That’s part of what, the productivity, kept the interest rates down and inflation down. But even more importantly, um, you know, how do you now run these businesses more efficiently as an investor.

So when I started thinking about what the opportunity set is, I actually talked to my grandfather, um, you know, rest is God rest his soul. Uh, and, he was like, “Robert, why would you ever leave Goldman Sachs?”

He said, “You know, that’s a great job. Why would you ever leave, uh, Goldman?”

And I said, “Granddad.” I said, “There are very few African American entrepreneurs, um, very few.”

You know, we knew about Reggie Lewis at the time. I said, “But, there’s just very few, and I’ve learned some things that not a whole lot of people know how to do.

And, you know, don’t you think it makes sense for me to go try and to take this risk?

Now, of course, my grandfather grew up, you know, he was born in 1915, Depression Era, segregated life. Uh, um, through most of his life worked really hard, uh, he said, “But, you know, what about the uncertainty?” Uh, and he and I spent a lot of time talking about this, um, and I said, “Granddad, how, you know, how, you know, would I feel if I if I don’t take this risk?”

Um, and ultimately, you know, as a as a good, you know, family and grandfather he was, he said, “You know, grandson, you know, I, you should go try.”

And, um, and I think that’s a big part of the lesson that we, as African Americans, so for so for so long, we have been discouraged, uh, to try, uh, to start our own businesses and to deal with the pain of that and the joy and the elation, uh, and the liberation of it.

Um, and that’s what ultimately led me to say, “This is worth trying and worth doing and giving it all that I have in my best.” Um, and that’s an important thing that I try to impart to, you know, I have a a wonderful once a month, um, session with the with the Morehouse Class of 2019 young men.

And that’s what we talk about is, okay, you know, a whole range of things. But one is to to to try and to take some risk. Uh, they don’t have didn’t have the debt that, you know, fortunately, that I had graduating from from college, but it’s important that they go and and look to to see what they can do. Uh, and how they can, you know, express their best selves, uh, in in, some cases, in a business environment, some cases, a medical environment, and then look to serve their community, uh, effectively from that, from that dimension.

So that’s why I left Goldman, to go give it a shot.