The fairy godfather of Philadelphia startups - Technical.ly Philly

Business

Jun. 22, 2017 12:59 pm

The fairy godfather of Philadelphia startups

The godfather of Philadelphia startups is not an investor or a founder. He's a lawyer that believed in the entrepreneurial community before it became commonplace. He's Steve Goodman.

Jazz musician, lawyer, startup consigliere: Steve Goodman.

(Photo by Aidan Un)

One Saturday morning in December 1996, Lucinda Duncalfe was at her office in Conshohocken when the phone rang.

It had been a whirlwind last few months, set in motion that fall when Duncalfe landed the top job at a fintech firm called Destiny Software. A first-time CEO in her early 30s, Duncalfe got to work raising the company’s first round of capital. In November, she took the stage at the Pennsylvania Convention Center during the Mid-Atlantic Venture Fair, where she beat out nearly 50 companies for the title of Best Early Stage Software Company. Investors took note. A Philadelphia Business Journal story from 1998 called it “a watershed event” for Duncalfe, and the company.

So, by that Saturday morning in 1996, Duncalfe already had three offers on the table. When she answered the phone, it was as if the voice on the other line had read her mind.

“Just pick one and close it!”

It was attorney Steve Goodman, a towering figure in Philadelphia entrepreneurship circles who had developed a reputation for grooming promising young entrepreneurs. He was calling with a reminder: Stop collecting term sheets. So that’s what Duncalfe did. It was the first of many times that Goodman would help out in a pinch, somehow knowing exactly what she needed at any given time. It’s why she calls him her “fairy godfather.”

“Steve was one of two people who mentored me, made introductions, and taught me how the world worked,” Duncalfe wrote to Technical.ly in an email. (The other was investor Bill Harrington.)

That’s high praise from one of the region’s most successful tech execs — after Destiny Software, which shuttered after the dot-com bubble burst, Duncalfe went on to start or run five more tech companies. She’s now the CEO of one of the region’s software giants, Monetate. But talk to the heavy hitters of the Philadelphia tech scene, the ones who were around before the dot-com boom, and you’ll find that Duncalfe’s story isn’t singular. It’s Goodman who is.

Advertisement

“You name a successful startup story in Philadelphia in the last 30 years and Steve has been involved with them,” wrote Dreamit Ventures Managing Partner Steve Welch in his 2010 book We Are All Born Entrepreneurs.

Welch and his Dreamit cofounders — all former Goodman clients — turned to Goodman when starting the accelerator, which elevated Philadelphia’s tech scene to an international stage by attracting early-stage startups from across the globe. “We were not going to ‘push the rock up the hill’ unless the Philadelphia startup community wanted it. Steve rallied that support,” said Dreamit cofounder David Bookspan, who added that Goodman has been “instrumental” to the success of each of his companies. Another accelerator founder, Garrett Melby, says it was Goodman who helped him find his way when he was navigating a career switch into the social impact realm — a term that, back then, seemingly no one in Philadelphia had ever heard of. But Goodman had. He put Melby in a room full of likeminded people and that’s how GoodCompany came to be.

The stories go on. But the point is this: Before Philly Startup Leaders or Technical.ly and its Philly Tech Week series or even Google, it was Goodman who was the front door of the Philadelphia area’s entrepreneurial community.

He was the one you called if you wanted to build a company in this town.

He was the one who invented the startup lawyer archetype during a time when lawyers wouldn’t look twice at someone who was building a company from scratch.

But to simply call him a “startup lawyer” would be inaccurate. It falls short. It doesn’t speak to how he cultivated a region’s startup scene, way back before it was sexy, before it was likely even prudent to do so — and how he saw it through for 50 years, the kind of timeframe that’s unfathomable to today’s young bucks. That’s why they call Goodman the godfather of Philadelphia startups.

But as the 76-year-old approaches retirement and as the tech scene blossoms to mainstream awareness — as if it has always existed, as if it were never a question that it could — it’s getting easier and easier to forget about those who laid the groundwork.

Well. This is your reminder.

###

On the first official business day of 2016, the beginning of what becomes an 18-month project to try to understand Goodman’s legacy, I ride the elevator to the 17th floor of the Morgan Lewis building at 1701 Market St. and find Goodman leaving a message on his colleague Jeff Bodle’s machine.

He’s alerting him to some news that transpired over the holidays: former Nutter staffer Luke Butler is joining one of the city’s most prominent startups, Curalate. Goodman doesn’t appear on the scene as he once did when he was younger, but he still keeps up. He works closely with Bodle, one of his protégés at Morgan Lewis and one of the many lawyers who appears to have been created in Goodman’s image. (Bodle, too, is one of the lawyers who will later write me long, enthusiastic emails about Goodman — “Steve is the man!” — and what he finds to be Goodman’s best quality: his relentless willingness to help anyone who asks, no matter how busy he is.)

Goodman tells me that he’s just returned from his holiday travels to Little Rock, Ark., where his wife’s family lives, and New York City, to see his grandchildren. His hair is dark with hints of silver at the roots and he wears it combed neatly to the side. He speaks very slowly, as if it’s almost difficult for him to do so, but his mind is clearly sharp, his manner still warm. He’s wearing a black eyepatch, in recovery from cataract surgery, and after a brief deliberation, he decides to leave it on.

Goodman came to Morgan Lewis in 1994, where he proceeded to “scale the heck out of Morgan Lewis’s emerging growth practice,” another Goodman mentee, attorney Chris McDemus, wrote to me. It became the early-stage shop in the ’90s, though other law firms have since entered the space. (Office lore is that Goodman made such a name for himself at the firm that he was the only one allowed to break the company rule about bringing pets into the office — his clients declared Snippet, his three-pound Teacup Maltese, Goodman’s co-counsel.) Now it’s common for law firms to post up at tech events armed with branded pens and yo-yos, to hire an investor-in-residence or to host a demo day. But that was not the situation in 1969, when Goodman teamed up with classmates from the Penn Law Review to start his own firm.

“I opened our doors to anyone with a dream,” Goodman tells me. He had recently moved back to Philly from Washington, D.C., where he had completed a prestigious clerkship with influential Supreme Court Justice William J. Brennan. As his cohort joined big law firms, Goodman took a less traditional path. He was determined to be more than just a paper pusher. So he set his sights on the young companies that no one believed in just yet, the ones that the big law firms dismissed. It was a strange class of companies to focus on, partly because they couldn’t always afford their legal fees but also because there weren’t that many around.

“In fact, people thought there weren’t enough emerging growth companies to make a practice out of representing them and that he was nuts,” said Peter Key, the former Philadelphia Business Journal tech scribe.

Goodman was unfazed. He kept plugging along, sometimes representing real estate developers when he needed more clients. In those first 10 years of running his own firm, he made less than his contemporaries working at big firms, but he didn’t mind.

“I knew what I wanted to do,” he said. “I wasn’t just another lawyer up in the library writing referendums.”

Goodman's office is a mix of mementos from his work as a musician and a startup lawyer. (Photo by Aidan Un)

Goodman’s office is a mix of mementos from his work as a musician and as a startup lawyer. (Photo by Aidan Un)

But Goodman could never have been just another lawyer because he was also a jazz pianist.

A performer since childhood, Goodman ran for student body president of Overbrook High School on the platform “Elect a jazz musician” and won. As a Penn undergrad, he played gigs at frat houses and then moved on to classier joints, many of which have now closed: The Frog, the Commissary piano bar, The Hershey Hotel, where he used to organize a jam session every Sunday. Goodman kept playing as his legal career blossomed. One of the most powerful corporate lawyers in Philadelphia and you could find him playing jazz standards in a hotel lobby on Rittenhouse Square. “It was important to my sense of equilibrium to also be playing,” he said.

All the while, he never learned to read music. He likes to talk about “playing by ear,” a technique he says he also uses when talking to entrepreneurs. He credits much of his success to his listening skills, his ability to read an entrepreneur and sense if they’re keeping something from him.

When I lament that I’ll never get to see him play — he stopped performing publicly in 2015 — he opens his desk drawer and hands me a shrink-wrapped CD. A jazz recording of the musical Chicago, performed by the Steve Goodman Trio and released in 1998 by a small Philadelphia label. You used to be able to pick it up at the old Tower Records on Broad Street, behind the Benny Goodman section.

“That was another part of the allure of Steve,” said Howard Ross, the former accountant who, along with Goodman, became the secret weapon behind successful startups in the ’80s and ’90s. Some of his clients didn’t even know, Ross said, but it didn’t matter. It wasn’t like they needed another reason to love him.

###

One of Goodman’s early successes was an unassuming chain of do-it-yourself home improvement stores named Panelrama. Founded by an entrepreneur named Gary Erlbaum while he was still a Temple undergrad, it was the first IPO Goodman ever represented.

But in 1979, seven years after Panelrama’s IPO, big box stores began to enter the market and the little chain’s future didn’t look so promising. So Erlbaum looked for a way out and that’s when he found the deal: by liquidating Panelrama’s assets and raising an additional $2.3 million, he could acquire a controlling interest in the patents for the laser. Yep, that laser. Erlbaum took the deal. Suddenly, Goodman and his scrappy little startup law firm went from representing a middling home improvement chain to a veritable money machine.

“That,” Goodman says, “was the gold ring for a startup lawyer.”

(Erlbaum’s brother, Steve Erlbaum, went on to found David’s Bridal, another Goodman client, which went public and then sold for $401 million in 2000. It’s since had a number of owners.)

If we can take a moment to gawk at how long it took for Goodman to get this break — it had been ten years since he had started his law firm — and the fact that he stuck with it, despite that. Goodman tells me there were other big clients in those first ten years, like the entrepreneurs who were buying back their companies from Pete Musser’s Safeguard. But it does still feel remarkable. On the one hand, in our culture that’s so obsessed with “making it” or at least pretending to, it feels hard to imagine a situation like that playing out today. But it’s also a reminder, as at least one local CEO recently pointed out, that this is the work of an entrepreneur: you’ve gotta be in it for the long haul.

Note the Teacup Maltese in the background. (Photo by Aidan Un)

Note the Teacup Maltese in the background. (Photo by Aidan Un)

The Panelrama story proved that it made business sense to make bets on early-stage companies, even if they couldn’t pay their legal fees in the early years. The important thing was to choose the right companies and Goodman learned how. There was Verticalnet, the dot-com darling with its multibillion-dollar market cap; CDNOW, the ecommerce pioneer whose 20-something, ponytailed founder Jason Olim marched into Goodman’s office at Morgan Lewis in a T-shirt and flip-flops (Goodman: “He was irreverent and I viewed that as a good sign”); and Zany Brainy, the chain of children’s stores founded by David Schlessinger, who went on to start Five Below.

Goodman doesn’t, however, mention the fates that befell Verticalnet, whose stock price famously crashed when the bubble burst, CDNOW, which got acquired as a last-ditch effort when a merger fell through, and Zany Brainy, which ended up filing for bankruptcy.

“I have an emotional quirk,” he says, “when I have a failure, I don’t catalog it.”

It’s the kind of optimism I’ve come to expect from Goodman. But he also doesn’t seem to believe in the conventional definition of failure: he points to Duncalfe’s “failure” with her first startup Destiny Software, which he says was due to market conditions — not anything about how she ran the company.

“She built a fabulous reputation because of the way she handled herself,” he says. And now, he says, look at her. When I visit him again and push on this idea of failure, he tells me that because of his work with Zany Brainy, he’s now an advisor to the board of directors of the publicly traded Five Below. He notes that the Olim brothers, CDNOW’s founders, retired off the fortune they made. And on the topic of Destiny, he says, “I don’t consider that a failure because I met Lucinda.” What makes him different from someone else who might deny failure is that he isn’t arguing the facts of what happened. He just sees it differently. That’s Goodman and his unwavering optimism. “I believe in the goodness of people,” he says. “I see what I’d like to see.”

###

Howard Ross is the counterpoint to Goodman’s modest and self-effacing nature. He will tell it to you straight.

“Our market share was mindboggling,” Ross told me over the phone. “If it didn’t have both of us, that was unusual and if it didn’t have either one of us, it probably didn’t matter.” He’s talking about startups in Philadelphia in the ’80s and ’90s, and apparently, the reach of the Goodman-Ross dream team.

Ross is what Goodman calls his “soul brother.” Ten years Goodman’s junior, Ross first met Goodman when he was 27, working as an accountant at Arthur Andersen. The firm had asked Goodman to give a presentation on the benefits of working with startups and Ross helped put the seminar together. Not long after, Goodman left his little startup law firm — his clients had grown so big that a boutique law firm wouldn’t cut it anymore — and took his clients to Wolf Block, one of the most pre-eminent law firms in Philadelphia at the time. By then, Ross had caught the startup bug.

They spent the next 20 years immersed in the entrepreneurial community. Every Sunday evening they’d get on the phone to compare notes: Who was raising capital? Who was going public? Who was the next big thing?

“We were much more than lawyers or accountants,” Ross said. “We were advisors, financial consultants, consiglieres.”

Steve Zarrilli has another name for it: “Steve and Howard were like the human versions of Google.” In those days, Zarrilli, now the CEO of Safeguard Scientifics, was a young accountant at Deloitte & Touche, trying to follow the lead of Goodman and Ross. It was tough. “They had the market cornered,” he said.

Philadelphia's most powerful tech leaders, like Safeguard Scientifics' Steve Zarrilli and DreamIt Ventures' David Bookspan, consider Goodman a mentor. (Photo by Aidan Un)

Philadelphia’s most powerful tech leaders, like Safeguard Scientifics’ Steve Zarrilli and DreamIt Ventures’ David Bookspan, consider Goodman a mentor. (Photo by Aidan Un)

To understand the power of Goodman and Ross in the ’80s and ’90s, Zarrilli told me it’s important to remember that things were very different for entrepreneurs before the internet. You couldn’t just send a question out to a startup listserv and expect a dozen suggestions. You couldn’t read blog posts on how to pitch an investor or RSVP to a meetup that would help you find your new sales lead. You turned to the people who knew everyone you needed to know, the people who could vouch for you, these people who could, as Duncalfe put it, teach you how the world worked. They were your entry point and the community coalesced around them.

“That’s what made these guys bigger than life,” Zarrilli said. 

(Why is it that Goodman holds the title of godfather and not Ross? One explanation is that Ross left the early-stage world in 1999 to start private equity firm LLR Partners.)

It was not Goodman’s legal expertise that made him who he was, according to Ross. Good legal representation can be bought. What Goodman was selling — his connections, his instincts, his ear — was different.

“He’s a business man first, a lawyer second,” Ross said. “That’s why he achieved such a franchise stranglehold.”

It’s also sparked a whole generation of startup lawyers in Philadelphia.

“Many of us owe our careers to him,” says Morgan Lewis attorney (and former Verticalnet General Counsel) Jim McKenzie, whether it’s because Goodman made an intro that led to a job or because he took them under his wing or simply because he paved the way for this kind of work. His spawn, if you will, know that it’s simply not enough to be a good lawyer. You see it with the likes of McDemus, who branded himself as VCDealLawyer with his blog, or Eamon Gallagher, who takes on the role of both attorney and community organizer with Philly New Tech Meetup, or Greg Seltzer, who launched a startup incubator at Ballard Spahr.

###

The godfather of Philadelphia startups will turn 77 in October (“I’m a Libra, which makes sense,” he says. “Scales of justice!”) and there’s no denying that he has slowed down. In a time when visibility is everything, Goodman has faded from view from the younger tech set, no longer that first entry point for newcomers to the scene. His near-term plans do involve retiring but he’d rather not dwell on that fact.

“I’m loathe to use the word retirement,” he tells me, when I visit his office last February. “I’m going to continue to do what I’m doing until they wheel me out.” He’s wearing a loose black turtleneck and a silver chain bracelet, a Blackberry holster and an iPhone holster on his hip. His hair is still neatly combed to to the side. He reclines in his chair. “If you’re going to write this in the article, write that ‘Goodman says he will never retire from being a helpmate to worthy entrepreneurs.'”

"I believe in the goodness of people," Goodman says. (Photo by Aidan Un)

“I believe in the goodness of people,” Goodman says. (Photo by Aidan Un)

A few months later, in the days leading up to Philly Tech Week 2017 presented by Comcast, I email Goodman to see if he plans to attend any events during the week. Since I’ve been reporting this story, I’ve hoped to catch him on the scene to get a sense of how he interacts with other people. It’s a common reporting technique that I later realize is made difficult with someone like Goodman, whose relationships are characterized by privacy, trust and discretion. (He’d be the best source in town if it weren’t for attorney-client privilege.) I also decide to send him a little update about myself, suddenly swept up by an instinct that he would want to know how I was doing, that he’d actually care. It’s a feeling that I know many others share when it comes to him. “It is a true mystery how he finds the time to be a mentor to so many,” said Garrett Melby. In my email, I write to Goodman that I’ve been feeling sad, perhaps going through a proverbial late-20s trial, une épreuve, they might say in French. (It’s a nod to a fact I had just learned about him: he and his wife, Janis, own an apartment in Paris’s eighth arrondissement, not far from the Morgan Lewis office. They spend part of the year there.)

He writes me back a few hours later — of course, known for his speedy responses, even when out of the office: “Regrettably I have been at home nursing a ‘paraflu’ which gravitated to my chest, where I am challenged by a chronic lung issue. So I can attest to understanding feeling sad!” He will not be able to attend any Tech Week events, he tells me, but he hopes I will still be his “esteemed biographer.” And then, he offers me his time, not just to answer any last remaining questions for the article, but as “a source of emotional support,” in a way that, even if I haven’t witnessed it, I know he’s offered to hundreds of people over the last half century, people who were surely going through their own épreuves.

It’s a quality of Goodman’s that has permeated the tech community — you hear it all the time, that the people here are willing to help. It’s one of the things he seems to have instilled. One of the things we can hold on to. Because in a lot of ways Goodman’s coming retirement isn’t the end of an era. It’s a reminder of an era that has long been finished. We will never have another Goodman, someone who carries the entire weight of a tech community on his shoulders, because we will never need another one. Instead of just one front door, we have many. It’s what the godfather of Philadelphia startups dreamed of all along.

Edited by Zack Seward.

-30-
Juliana Reyes

Juliana Reyes became Technical.ly's editorial product lead after reporting on the Philadelphia tech scene for four years. She's co-president of the Asian American Journalists Association Philadelphia chapter and a two-time Philadelphia News Award winner for "Community Reporting of the Year." The Bryn Mawr College grad lives in West Philly, likes her food spicy and wears jumpsuits often.

  • Ed Dougherty

    What an amazing article. How’s that for a comment? An amazing piece of reporting, of reflection, of appreciation. Beautifully put. To the writer, thank you for how much of yourself you put in to this. To Mr. Goodman, well, a whole generation, maybe a whole region, is in your debt.

  • C.H. Low

    What a wonderful piece. I am so eternal grateful to Steve and his team (Jeff Bodle et al) for all their help!!!

  • Steve Talis

    In 1983 Steve was our attorney buying ADPI Enterprises, Inc from ARCO Chemical Co (Atlantic Richfield). His support and advice were instrumental to a young bunch of guys who had more enthusiasm than money. Years later when Steve became a star at big law firms he never forgot his roots-he grandfathered our fees! After all is said he is just a good person who cares. Thanks Steve.

  • I got choked up reading this. Steve cared for us like family. From original operating agreement to merger agreement. He also taught us the players and the game. Belt and suspenders my good friend, belt and suspenders. It was our privledge to have you in our lives. One of a kind.

  • Ray Carballada

    I am one of those lucky people that crossed paths with Steve Goodman several years ago and someone who I now call a friend. Steve is one of those rare individuals in the business world without an agenda, is direct, always trying to help, and tells you what he thinks even when it’s not in his business interest to do so. Like many in our region, I am thankful for what all his help and what I have learned from Steve.

  • Anna Gutkina

    Thanks, Juliana, for such a great article about Steve Goodman. As many and many I too benefited from Steve’s help, character and belief in the goodness of things! Maybe this belief is the thing that is the most profound.

Advertisement

Sign-up for regular updates from Technical.ly

Do NOT follow this link or you will be banned from the site!