Finance Recommended

Entrepreneurs are starting businesses to last at least 100 years…and they’re getting VC backing

Looking for long-term growth        Photo: Pixabay
Looking for long-term growth        Photo: Pixabay

Here’s an interesting trend with relevance to family businesses and family offices. Entrepreneurs are setting up businesses designed to last 100 years and more. They aren’t interested in selling – and even more amazingly some are being backed by venture capital. Are these businesses effectively start-up family businesses?

One business determined to last a very long time is Integrated Project Management, a project management consulting firm, set up in Illinois in 1988 by Rich Panico. The former senior manager for Johnson & Johnson founded IPM with a vision to grow a business that will be around for at least 100 years. Maybe Panico was influenced by family-owned Johnson & Johnson, which is more than a 100-year-old family business.

Whorton – best known as a prominent Silicon Valley venture capital investor – a few years ago coined a new phrase: evergreen companies

OK, IPM isn’t big – it has revenues of around $30 million and employees around 150 full-time staff, but Panico didn’t start the business to be huge, what was important was its durability and commitment to a core set of values that are designed to help it on its long journey towards one hundred years of existence. These values – employee job security, commitment to integrity, strong links to all its stakeholders, and continuously improving operating performance – will be very familiar to family businesses.

Businesses like IPM, which start out with the intention of lasting for a very long time, rather than selling out quickly, are growing in numbers, says Dave Whorton, managing director of the Palo Alto-based Tugboat Group. In fact, Whorton – best known as a prominent Silicon Valley venture capital investor – a few years ago coined a new phrase for them: evergreen companies.

Evergreen companies are started by entrepreneurs who want to build profitable and innovative businesses that they would run privately for their lifetimes, says Whorton. Whether they pass the business on to a family member or not, doesn’t matter. What mattered, says Whorton, is that these businesses have what he calls the “7Ps” – purpose, perseverance, people first, private, profit, paced growth, and pragmatic innovation.

Family offices and ultra-high net worth individuals are among financial backers

Whorton knows his venture finance. He worked for Kleiner Perkins Caufield & Byers, one of the most successful VC firms of all time. KPCB backed Google and Amazon, and Whorton worked on these deals. But that begs the question: why is Whorton backing the concept of the 100-year company that aren’t looking to sell given his background? Well, one thing he’s not trying to do is replace the dominant VC and private equity models that are looking for fast exits. Instead, he’s just providing an alternative for those entrepreneurs thinking about something more long term in terms of ownership.

In 2014, Whorton, along with Chris Alden, co-founder of the Red Herring media group, launched the Tugboat Institute, a membership group for evergreen entrepreneurs. And to help finance these long-term entrepreneurs, Tugboat Evergreen was also started. “It is designed to provide patient, long-term, and non-controlling capital for these businesses,” says Whorton. Family offices and ultra-high net worth individuals are among financial backers, adds Whorton.

There were 90 members of the Tugboat Institute at the end of 2016, and Whorton says membership is likely to grow to 160 in 2017. The institute is open to those entrepreneurs thinking about setting up family businesses – that is passing the business onto the next generation. Businesses just need to adhere to the 7Ps, which of course many family businesses do.

With Silicon Valley thinkers like Whorton backing 100-year businesses, the future for privately-owned companies committed to the long-term, rather than a quick exit, looks rosy. Family enterprises should take note – their business model is even gaining traction in Silicon Valley. That’s praise indeed.

Here’s a good article by INC discussing the issues raised in this article in more detail