Inside Thayer’s Investment Success

Leland Pillsbury is a man in motion. One day he’s flying his jet to State College, Pennsylvania, to give a lecture on embracing disruption at the Penn State School of Hospitality Management, and the next he’s jumping on the phone with the investment committee from Brookfield Asset Management, or meeting with a CEO of one of the tech companies he’s invested in. As a venture capitalist focused on the hospitality industry, Pillsbury has been both generous and strategic in sharing his ideas and investment capital over the past 25 years.

He is the co-founder and co-chairman of Thayer Lodging Group, one of the top performing privately held hotel real estate investment firms in the United States. The firm’s investment funds own such iconic properties as the Diplomat in Fort Lauderdale, the Ritz-Carlton in San Francisco, and the Highland Hotel in Dallas. One fund also has a significant stake in Interstate Hotels & Resorts, the massive third-party management company based in Arlington, Va.

Pillsbury is also a co-founder and senior adviser at Thayer Ventures, which specializes in providing venture capital for technology startups in the hospitality space. The firm leverages the industry know-ledge of airline, hotel, and restaurant executives to make early investments in key innovators. Over the past three years, Thayer Ventures has helped companies like Hipmunk, TripBAM, Duetto, and Adara get launched and build critical mass.

And outside of Thayer Ventures, Pillsbury has invested his time and money into launching 17 companies since he left Marriott International. He says, “What I’ve learned about the economics of the business, about the consumers, about how they think about employees, about where the friction points are in the business, I can take that knowledge and end up with new insights.” He likes to say he bets on the jockey and not the horse because he’s more focused on the ability of a company to adapt and execute than the novelty of a new idea.


How has your role changed at Thayer Lodging Group since Brookfield Asset Management bought it in 2014?

I remain co-chairman at Thayer and am a senior advisor to Brookfield Global Lodging. We didn’t sell Brookfield the real estate portfolios and existing funds, so I am still a general partner in those pools, but all of the partnership operations, the asset management resides with them. The property management stays with me, but Brookfield is running it, effectively. I’m on their investment committee, but my real focus is the real estate funds—three of them are still active. Interstate Hotels is owned by one of those funds, and I’m the chairman of the holding company. Our partner in that venture is [Chinese hotel company] Jin Jiang Group.

What’s the state of things at Interstate? Back in July, the Wall Street Journal reported it was up for sale, which is odd since it’s normally the one on the buying end of the deal.

Yes, Interstate has done a lot of M&A work, but we did a roll-up strategy with Interstate over the past five years. We’re in talks with a couple of groups about selling it, and I don’t know whether we’ll get to a transaction or not. I like the company. It’s the only global third-party manager and I think there are still plenty of growth opportunities for it through its platforms in Russia, Europe, Eastern Europe, the U.K., India, and China. Increasingly the capital markets are international, so being able to handle global investments is a big plus. But as I said, Intestate is owned by one of our funds. We’ve owned it five years and the fund strategies for our investors is to make an investment, achieve the results, and then recycle our money.

How is this approach different from the one you use with Thayer Ventures? Is that more about trying to get in on these startups in the early stages?

A couple of years ago, the focus was on late-stage investment and being in the last round before a company went public. There was a ton of capital focused there. We have always been early stage because we think, due to our industry knowledge, we should be able to spot the winners and the losers earlier. So, rather than waiting until a company is in the series C round when it’s pretty clear to a firm like Kleiner Perkins whether it’s going to work or not, we focus on being in the almost angel stages.

The venture game is an odds game. You make 10 investments. Two of them, you hope really work. Three of them, you hope survive. The other five fail. Our bet is that we can go early, but we can have an overall success rate that’s higher than other venture capitalists because we’re so narrow. Both in terms of our ability to recognize what’s going to work and what isn’t early, and then also because of our relationships to be able to help these companies thrive. If you focus on one industry vertical and go really deep into that, the knowledge that you have there gives you a competitive advantage against somebody that’s investing across 25 verticals.

In the case of Duetto, I would say at least once or twice a week I’m doing something to help that company break a new client or get some feedback from an existing client. I’m on the phone with a CEO, asking, “Would you take a look at this?” Or, “Would you go back and find out how this is doing? Are we really delivering against our promises here?” That’s not something Kleiner Perkins can do. I think that both gives us opportunities, startups want to be with us because we can do this for them, but it also helps ensure that they’re going to make it.

Click here to read about Pillsbury’s first big break.

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