Can you find the common threads in these three business sagas?
• Saga No. 1 (The past): German immigrant Carl M. Loeb arrives in America in 1892, works his way to the top of American Metal Co. by 1914, retires at age 56 in 1931 and, with the proceeds from his business, launches the Wall Street brokerage firm of Loeb, Rhoades & Co. with his brother, his son and two nephews. When Loeb Rhoades vanishes into a 1979 merger with Shearson Hayden Stone, Carl Loeb’s sons John and Henry and grandson Thomas Kempner form Loeb Capital Partners to manage the family’s money. The Loeb descendants are still at it today, incubating dozens of fledgling business enterprises with five- and six-figure investments the old-fashioned way, on a deal-by-deal basis.
• Saga No. 2 (The present): Four Seattle-based sons of radio and cable TV pioneer John Elroy McCaw sell his cable systems in 1987, then use the proceeds to build America’s first nationwide cellular-phone network. After selling McCaw Cellular to AT&T in 1994 for $11.5 billion, the brothers become major funders of innovative high-tech firms (Nextel, XO Communications, Teledesic, etc.) through their Eagle River investment arm.
• Saga No. 3 (The future): After 80 years as a family business, the third-generation managers of Genuardi Family Markets sell their Pennsylvania-based 39-unit supermarket chain to Safeway Stores in December 2000. The eight Genuardi cousins who jointly ran the company, most of them in their 40s and 50s, tell reporters they’ll take some time off, then go into another unspecified venture “as a group.”
These three cases all involve family businesses whose owners, in the course of several generations, developed wealth and expertise within a given industry, plus one other intangible asset: a shared heritage of core values. Instead of going their separate ways after their companies were sold, they remained together, opting to nurture businesses they could relate to.
That’s valuable news for family firms searching for capital in these days of tight money. According to a Global Entrepreneurship Monitor study last year by researchers at Babson College and the London Business School, nearly half of new family businesses are bankrolled by existing family firms. And it stands to reason that when business families evolve from owners to angels, they’re most likely to invest in what they know best—family companies.
“It’s a natural evolution,” says Hugh Coleman of Spencer Trask & Co., which advises angel investors. “They continue to function together, except now they have to manage a pile of money. They won’t delegate that job—it would be aberrant for them to do that.”
Contrary to popular stereotypes, the typical angel investor is not your 30-year-old Silicon Valley entrepreneur with an instant billion on his hands after cashing out of his dot-com in the ’90s. Angel investing for the most part has always been a family affair. Wealthy American families provided the seed money for the first great 19th-century industrial companies. In the mid-20th century many of those families harvested their gains, but rather than invest the proceeds in securities (fraught as these are with public disclosure risks), the families returned to their roots by funding companies they understood—in effect launching the modern venture capital industry.
And they’re still at it—except that today there are far more angel families (and potential angel families) than ever before. From Wal-Mart, Ford and Cargill down to the corner grocer, some 90% of all U.S. companies are family-controlled. Of some 60,000 U.S. companies with sales of $25 million or more, two-thirds are family-owned and private, according to Dirk Dreux IV of the University of Connecticut’s Family Business Program. Many of these families, like the Johnsons of S.C. Johnson & Co., run operating businesses while functioning as angels on the side—funding start-up ventures that eventually become strategic allies. Some 6,000 families are believed to operate informal family investment offices within their privately controlled companies, according to the Family Office Exchange, a clearinghouse for family offices.
But a family’s real angel activity tends to begin after the family business is sold. At that point the proceeds are channeled into a family holding company, or one of the nation’s 3,000-some family offices, or one of America’s roughly 5,000 family foundations. Whatever the vehicle, that’s a huge pool of capital controlled by sophisticated families and being pumped into sophisticated ventures: Of the estimated $60 billion in private equity available each year for new business start-ups, families and individuals provide $56 billion, and venture capitalists just $4 billion, according to a joint 1999 study by the Kauffman Center for Entrepreneurial Leadership and Babson College.
Angel families pack a punch for many reasons. “They’re connected by more than money,” says family business adviser Richard Narva, founder of Genus Resources in Needham, Mass. “Their balance sheets are very unleveraged. The enterprises they control are unleveraged. So they’re free to do a lot of investing.”
The lesson seems clear: To find today’s angels, follow the families—even the families of those 30-something Silicon Valley techies. “Sooner or later,” Narva reasons, “most people end up in families—even if it’s a same-sex relationship. The notion that management of wealth is separate from the full scope of one’s life is silly.”
But identifying America’s greatest angel investor families may be the biggest challenge of all. Angel families by their nature avoid publicity for fear they’ll be inundated by hungry investment bankers. And angel investments by their nature are often too small to arouse public attention. Some families defy definition because they function as both angels and venture capitalists simultaneously. As for family offices—one of the largest reservoirs of U.S. family wealth (and thus of potential angel activity)—“Only one organization is more secretive than family office groups, and that’s the Cosa Nostra,” says Spencer Trask’s Hugh Coleman.
But Family Business rushes in where others fear to tread. What follows is our own highly speculative list of educated guesses, assembled from publications, the Internet and, above all, conversations with dozens of knowledgeable sources. As their examples suggest, angel investing is one of the healthiest and most rewarding activities for wealthy families—not to mention their recipients and the economy at large. Even if you don’t know the families on this list, you may know somebody like them. If you’re looking for investors, why not give them a call? You could do them a big favor, and vice versa.
Oldest money: Pre-20th-century fortunes
Berwind. Philadelphia. Berwind Group, founded 1874 to mine Appalachian coal, now family holding company with diverse interests: computer display screens for planes and cars, Supra lock boxes, real estate, investment banking, pharmaceuticals, etc. Still wholly owned by Berwind family.
Cargill/MacMillan. Minneapolis. Descendants of William Cargill and his brothers, who founded Cargill Inc. in 1865, still own two-thirds of this commodities company, world’s largest private concern. Since 1999 has invested in at least eight independent food and agribusiness Internet marketplaces and some half-dozen other e-commerce firms involved in shipping, steel and technology.
David-Weill. New York and Paris. Descendants of three Lazard brothers, Parisian merchant who founded Lazard Frères banking house in America, 1848. Family still controls three-branch investment bank (New York, Paris, London), until recently run by one founder’s great-great-grandson, Michel David-Weill. New York house active in many angel deals: Partners there typically commit to a dollar amount and divide it among themselves and other investors.
du Pont. Wilmington, Del. Fortune from DuPont Co., founded 1802, now widely dissipated. Dominant (but childless) CEO Pierre S. du Pont II (1870-1954) and eight siblings built Wilmington Trust Co.; dissident branches run Delaware Trust Co.
Hearst. New York, San Francisco, etc. Heirs of publishing magnate William Randolph Hearst (1863-1951), enriched by founder’s will but specifically barred from controlling Hearst Corp., seek investment outlets elsewhere. Grandson William R. Hearst III, 53, a partner in tech venture-capital firm Kleiner Perkins; sits on boards of AtHome, Com21, Viewpoint Datalabs.
Johnson. Racine, Wis. Fourth- and fifth-generation descendants of Samuel Johnson, founder (1886) of S.C. Johnson & Co. (Johnson Wax, etc.). Company still family-owned and -run. Its recreational products division, Johnson Worldwide Associates, launched as angel investment 1970, went public 1987.
Mellon. Pittsburgh. Thomas Mellon founded Mellon Bank 1870; sons Andrew and Richard played angels to births of Gulf Oil, Alcoa, Koppers, Carborundum, others. Fourth and fifth generations, through Mellon family office, still doing variety of early-stage investing through angel deals, venture capital partnerships, buyout funds.
Phipps. New York. Carnegie Steel partner Henry Phipps (1839-1930) set up Bessemer Trust Co., America’s earliest family office, for descendants in 1907. Its Bessemer Venture Partners arm, launched 1973, now invests $200 million-plus (Phipps money plus clients’) annually in early-stage private companies—most through other venture funds, but some individual deals too.
Pitcairn. Philadelphia. John Pitcairn co-founded Pittsburgh Plate Glass 1883; more than 350 heirs sold their last stake in re-named PPG Industries 1985. Proceeds went to numerous angel investments as well as Pitcairn Trust Co., family-owned multi-family office that manages $1 billion for 75 Pitcairn family clients, among others.
Rockefeller. New York. Oilman John D.’s grandson Laurance, now 92, was lifelong venture capitalist: Helped create Eastern Airlines and McDonnell Douglas. Fourth, fifth generations still doing early-stage investing through family office and VenRock venture capital arm.
Rosenwald. New York, etc. Descendants of Sears Roebuck patriarch Julius Rosenwald (1862-1932). Son William Rosenwald (d. 1996) big private investor through his American Securities Corp.; his four siblings were major philanthropists. Now several family capital pools; some do angel investing.
Rothschild. New York. Descendants of legendary European banking dynasty with roots in 18th-century Frankfurt. Their Rothschild Group a leading investment boutique in Europe, began major push into U.S. last year. Family has long done angel investing here through its New Court Securities, now Rothschild Inc.
Turner/Butler. Columbus, Ga. Fortune from early Coca-Cola investor W.C. Bradley. Great-grandsons Stephen Turner Butler and William B. Turner Jr. use family company to oversee family investments in Char-Broil barbecue grills, real estate, banks.
Weyerhaeuser. Washington State, Minnesota. Timber baron Frederick Weyerhaeuser and brother formed Weyerhaeuser Co. 1900; giant paper firm still family-run in fourth generation. Some 200 descendants jointly own Rock Island Company, family investment arm that invests mostly in forest products industry. Family also operates Clearwater Funds, in-house mutual fund company selling only to family members.
Old money: Pre-World War II fortunes
Allen. New York. Legendary freewheeling brothers Charlie and Herbert Allen launched Allen & Co. 1922 to invest family money, added investment banking clients 1946. Among the first and most prolific angel investors: Gambled and won on birth control pioneer Syntex Corp., Benguet gold mine in Philippines in 1942 (when still in Japanese hands), Digital Switch Corp., Northwest Energy Co., many more. Still at it under Herbert’s son Herbert Jr.: In 2000 backed Global Education Network, start-up seeking to teach college courses on the Internet.
Ball. Philadelphia. Third-generation descendants of Russell Ball, founder (1892) of Philadelphia Gear Corp. Family’s American Manufacturing holding company said to have active investment office.
Berry. Dayton, Ohio. Heirs of “Mr. Yellow Pages,” Loren Berry (d. 1980) and son John Berry Sr. (d. 1998). John Jr. now chief executive of Berry Investments, founded by his father with proceeds from 1986 sale of family’s company to Bell South.
Blaustein. Baltimore. Descendants of Amoco founder Louis Blaustein (1869-1937) and son Jacob (1892-1970), who invented drive-in gas stations. Heirs Henry Rosenberg Jr. and Louis B. Thalheimer active investors in real estate, office products, security systems, etc.
Bronfman. New York and Montreal. Descendants of Samuel Bronfman (1891-1971), who parlayed a Winnipeg hotel/bar into world’s largest liquor company: Seagram’s. Family long active in angel deals. Founder’s grandson Edgar Jr. sold company in 2000 for $34 billion, now seeding promising new web firms in Latin America through E-Quest Partners, private equity firm he launched 1999 with brother-in-law Alejandro Zubillaga. So far known to have put $10 million of their own funds in seven companies.
Collier. Naples, Fla., and Phoenix. Descendants of Barron Gift Collier, who purchased 1 million acres Florida land between 1911 and death in 1939. Family’s Private Capital investment arm now has more than $2.5 billion assets.
Crown. Chicago. Founder Henry’s son Lester and four children own biggest stake in General Dynamics, dabble in many others: Vulcan Materials, Alltel, New York Yankees, Chicago Bulls, etc.
Dayton. Minneapolis. Fourth- and fifth-generation heirs of George Draper Dayton, who founded Dayton’s department stores chain 1902 (now Target Corp.). Dayton family investment office active angel investors.
Duchossois. Chicago. Family’s Duchossois Industries, founded 1906, now diversifying into railroad cars, garage door openers, keyless entry systems, etc.
Hillman. Pittsburgh. John Hillman Jr. (d. 1959) built coal/steel/gas fortune. Son Henry now runs Hillman Co. as investment firm. Early backer of Kleiner Perkins venture capital firm. Now interested in high tech, medical technology, light industry, natural resources, distribution companies, medical technology, etc.
Kellogg. New York. Fortune from family investment bank Spear, Leeds & Kellogg, founded 1931. James Kellogg III became partner 1945; son Peter took charge 1973. Now well-known as Nasdaq market-maker, but Peter’s $100 million-plus personal portfolio includes obscure ventures like Nam Tai Electronics, the Advest Group (brokerage) and Thousand Trails (campground owner).
Koch. Wichita, Kan. Privately owned Koch Industries empire (oil, gas, agriculture, etc.) owned and run by brothers Charles and David Koch, sons of founder. Its Koch Ventures Group division has pumped at least $160 million into entrepreneurs and high-growth industries (Universal Access, Velocita Communications, VerticalNet, e-commission, Delinea, Datria, Rulebase, etc.) since 1995. Dissident brother William invests in real estate, offshore oil and power plants through his Oxbow Corp.
Loeb. New York. Family of Carl M. Loeb (American Metal Co., Loeb Rhoades & Co.) invests family money since 1979 through Loeb Partners, now run by founder’s grandson Thomas Kempner. Old-fashioned merchant-banking concept focuses on fledgling entrepreneurs with five- and six-figure seed funds.
Stern. New York. Hartz Mountain pet-supply empire, founded 1926, expanded into real estate and media under founder’s son Leonard Stern, 65. His son Edward, former Hartz president, sold company in 2000 to focus on family’s investments.
New money: Post-World War II fortunes
Bass. Fort Worth, Texas. Perry Richardson Bass and sons Sid, Edward, Lee and Robert inherited fortune from Perry’s oilman uncle Sid Richardson. From 1968 on, their Bass Management Trust bought large stakes in blue-chip companies (Disney, Texaco, Nabisco). Current investments include Human Genome Sciences, GlobalStar, Hawthorne Financial and manufacturing concerns. Robert marches to his own drummer, but his three brothers in tandem have become modern-day Medicis, especially in Fort Worth.
Batten. Virginia Beach, Va. Frank Batten Sr. built Landmark Communications multimedia chain; son Frank Jr. succeeded 1998, began investing in new media startups. Pumped $2 million investment into fledgling Internet company Red Hat, subsequently worth hundreds of millions.
Fisher. San Francisco. Three sons of Gap chain founders Donald and Doris Fisher left family firm, now active investors. Robert on board of San Francisco’s Rosewood Venture Group; John founded investment outfit Pisces.
Fuqua. Atlanta. Conglomerateur J.B. Fuqua, 84, bought and sold dozens of companies, launched joint ventures through his Fuqua Companies, started 1940. Son Rex helped fund 1995 Atlanta startup that provides heart-monitoring services for arrhythmia patients.
Gund. Cleveland, etc. Late banker George Jr.’s six children have diverse investments. Most visible: Cleveland Cavaliers (basketball), San Jose Hawks (hockey). Gordon runs Gund Investment Corp. from Princeton, N.J.
Johnson. Boston. Family has controlled mutual funds giant Fidelity Investments since 1946, now run by Edward C. (Ned) Johnson and daughter Abby. Parent holding company’s venture capital arm owns stakes in the TriZetto Internet medical site, a Boston car service, British Telecom’s Colt Technology, other ventures.
Lindner. Cincinnati. Publicly traded American Financial Group is de facto family holding company for diverse investments of dairy entrepreneur Carl Lindner Jr. and sons Carl III, Craig and Keith. They own about 36% of American financial stock.
McNeil. Philadelphia and Florida. Third- and fourth-generation descendants of McNeil Laboratories founders (where Tylenol was invented) now invest through Claneil, a holding company with name derived from Scottish “Clan McNeil.” Henry S. McNeil Jr. invests separately.
Pritzker. Chicago. Third and fourth generations oversee Marmon Group conglomerate, Hyatt hotel chain. Highly active and astute investors and deal-makers. Investments include private jet manufacturer Galaxy Aerospace, Royal Caribbean Cruises, Conwood tobacco, real estate.
Richardson. Greensboro, N.C., Connecticut, etc. Descendants of Vicks VapoRub creator Lunsford Richardson. Some 200 heirs have holdings in Lexington Global Asset Managers, Chartwell Real Estate, Vanguard Cellular, etc.
Spangler. Charlotte, N.C. Clemmie (Dick) Spangler Jr. made banking fortune. Family holding company run by his son-in-law, venture firm by daughter.
Stephens. Little Rock, Ark. Stephens Group, family investment bank, launched 1933 by brothers Jackson and late Witt Stephens, now run by Jackson and son Warren. Largely conventional underwriting, real estate, oil and gas investments. But in 1997 launched Lasvegas.com tourism website.
Tisch. New York. Brothers Laurence and Preston (Bob) co-chair Loews Corp., investment firm run by three of their sons. Best known for big public holdings (CNA Financial, Lorillard Tobacco, Loews Hotels, Diamond Offshore Drilling, etc.) but also have long history of small angel deals that don’t make the papers.
Wyly. Dallas. Bush booster Sam and older brother Charles founded University Computing with $1,000 in 1963, have invested widely together since 1970: energy companies, insurance, oil, Bonanza steak houses, failed Datatran data-transmission company, Sterling Software, Michaels Stores (arts and crafts chain), Greenmountain.com (“environmentally friendly” energy supplier).
Ziff. New York. Brothers Dirk, Robert, Daniel sold Ziff-Davis publishing empire 1994 for $2.1 billion, now invest proceeds through their Ziff Brothers Investments. Holdings range from oil to tech outfits.
Newest money: Freshly minted
Lenfest. Philadelphia. H. FitzGerald (“Gerry”) Lenfest and family sold half their cable TV company 1999. Since then, son Brook set aside 30% of proceeds for investments through Brooks Capital, investing mostly in media, telecommunications and Internet-related companies (NetCarrier Inc., Smart Tone Inc., etc.). Brook’s brother Chase, through his Lenfest Enterprises, has invested in broadcast station WWAC (Atlantic City, N.J.), MarketConnect (advertising TV channel), and (with his father) StarNet (cable advertising firm).
Lindemann. Palm Beach, Fla., Greenwich, Conn. George Lindemann and family made first fortune in 1970s from contact lens design, recycled it into cable TV licenses, cellular phones, natural gas distribution, Spanish-language radio stations. Planning to launch 24-hour news station in New York.
McCaw. Seattle. Father John Elroy McCaw built pioneering radio and cable TV systems; four sons pioneered cellular phone network, sold it 1994. Major funders of innovative high-tech firms (Nextel, XO Communications, Teledesic, etc.) through their Eagle River investment arm.
Roberts. Philadelphia. Ralph (father) and Brian (son), respectively founder and CEO of cable giant Comcast, known as active angel investors.