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Family to Family: A Growing Investment Model – Part Three: Long-term Focus

Financial advisors walking outside --- Image by © Olix Wirtinger/Corbis

This is the final part of a three part series, exploring how the family to family investment model is working in the greater Milwaukee community. A number of high profile investments in family-owned businesses last year were notable because the investors were other family groups. We talked with Milwaukee-area investors practicing a similar model. Part One and Part Two explored two of the characteristics Marten Bennedsen identified as being critical to successful family investors, connections and values. To close the series, we focus on the final characteristic – long-term vision.

Many family investment groups are comfortable with a long-term buy and hold strategy, an approach consistent with how many family-owned firms build success. These investment groups use their own capital, rather than the capital of other investors, allowing greater flexibility to consider different timeframes for investment holding. Rather than focusing on a return in a few years, as is common with much of the private equity groups with outside investors, some family investment groups intend to hold investments for generations. Jake Hansen of a Jacsten Holdings, a Milwaukee investment firm, explains the firm’s comfort with investing in family-owned businesses, “We believe a legacy of family ownership also protects our downside risk. A business that has been run for three generations, has been successful for 90 years, that stability suggests it’s a pretty good investment. Family involvement often means there is freedom to focus on long-term value creation rather than just short-term returns.”

A long-term focus also means existing employees can rely on continuity amidst new ownership. Many departing business owners are concerned about the impact a transaction will have on those that helped them achieve success. Hansen stresses the importance of early involvement from executives, “Often key management personnel will be brought into the discussions. We let the management team know we intend to be a partner going forward, that we have a long-term vision. We often find creative ways for the management team to participate as equity owners. We want to make sure we are all aligned long-term.”

The commitment to personnel is echoed by Mike Kasdorf of Kaztex Ventures, another local family investment firm, “We come at each opportunity from the people side. Our real interest is in the personal dynamics in the company. We help build an intentional structure in the company and focus on personnel development.” Whether creating new leadership training or building a scalable and repeatable sales process, Kasdorf stresses the long-term commitment to the people involved. This committed, personal approach stands in stark contrast to the experience of many workers at firms purchased by private equity investors, which are more likely to place a higher weight on bottom-line profitability than long-term personnel development.

Behind the announcement of the sale of a family-owned business, large or small, is a very complex process of trust, values and commitments. Recent high profile cases of family-to-family transactions may be a larger trend going forward, as families navigate one of the largest transitions of wealth between generations in human history[i]. As families elect to sell their family-owned firm, the wealth generated will provide seed capital for the next round of family investments. With the unique advantages of family investment groups in completing these complex transactions, we may see more family-to-family sales to come. As those unfold it will be exciting to explore how values and visions of families come together to create new family legacies.

[i] “An estimated $59 trillion-divided among heirs, charities, estate taxes and estate closing costs –  will be transferred from 93.6 million American estates from 2007-2061, in the greatest wealth transfer in U.S. history” from Boston College Center on Wealth and Philanthropy accessed on 4/20/2017.  Link.

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Views and comments expressed in this blog are those of the author and do not necessarily represent the positions of Cleary Gull or fellow Cleary Gull associates.