From their work ethic to their idealism, people in Silicon Valley tend to do things a bit differently.
Turns out those differences extend to the way many of Silicon Valley’s newly rich think about generational wealth. So suggests Jim Cod...
From their work ethic to their idealism, people in Silicon Valley tend to do things a bit differently.
Turns out those differences extend to the way many of Silicon Valley’s newly rich think about generational wealth. So suggests Jim Cody, a managing director of estate, trust and philanthropy advisory services at Harris myCFO, a wealth management firm that caters to ultra-high-net-worth clients, or people with $25 million in investable assets and a net worth of about $100 million.
Though the firm has seven offices nationwide, including in Seattle, Chicago and New York City, Cody says there are disparities between the clients the firm sees in the Bay Area compared to elsewhere. In California, for example, high net worth individuals tend to be slightly younger, with 27% under age 40, compared to 24% nationally. (The data comes from BMO Private Bank, the parent company of Harris MyCFO.)
Also, less than 1% of California’s ultra-rich individuals inherited their wealth, compared to 3% nationally. Perhaps most meaningfully, Cody says that in Silicon Valley, the super wealthy think there’s always another home run around the corner.
We talked with Cody yesterday. Following is our conversation, edited for length and clarity.
How do venture capitalists differ in the ways they manage their wealth from your other customers?
The VCs vary. Some are younger people who are just getting started and getting their first carried interest and who are more akin to entrepreneurs who are having their first wealth event. Then you have VCs who have been around 10, 15, 20 years and who’ve seen liquidity events and are, by necessity, more diversified, given that their wealth has come from different funds with different maturities.
[The latter group] tends to be more savvy from a business point of view and taking holdings off the table. We see them distribute to themselves when they distribute shares to their [firm’s] investors, and often, they’ll use those shares – which are often very low basis shares – for charitable giving. Or they may have a standing order with us to sell the shares right away when the shares hit their account.
Many entrepreneurs and former VCs have become angel investors. How much of their overall wealth is it safe to invest in startups?
The percentage of overall wealth that someone can afford to put back on the table depends on their individual risk level and the magnitude of their wealth. Billionaires only “need” several hundred million dollars to live off of, so they can invest more. If someone’s wealth is between $10 million and $20 million, we wouldn’t counsel those folks to put a meaningful percentage of their wealth into high-risk investments. The person with $20 million might considering [reinvesting] $1 million or $2 million [into startups].
Our advice is: You’ve hit a grand slam. These types of events should be considered once-in-a-lifetime. Let’s make sure this money lasts throughout your lifetime to accommodate your needs and your family’s needs and, if possible, your philanthropic desires.
Do you see differences among your clients nationwide?
Across the U.S., we have clients who have what we’d call more mature and multi-generational wealth, where the clients aren’t necessarily the first-generation wealth creators, as they tend to be in the Bay Area. In the Midwest, and in the Chicago area, where it’s inherited wealth, the clients treat [the money] more like they are stewards and like it has purposes beyond their immediate needs, meaning for family members, future generations, and philanthropic organizations. Older wealth is more conservative and less risky.
In the Bay Area, you meet these young entrepreneurs who are very bright and who, when we tell them to consider a wealth event as a one-time [happening], they tell us that one of their friends has [hit a home run] three times. So their experience tends to be clouded by what they see others doing. We also see people who’ve made it and lost it and get back on the horse
