Family Business Audiocast | Episode 51 | Rick Holton
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R. Adam Smith: [Intro] Welcome to the Family Business Audiocast on LinkedIn. I am R. Adam Smith, creator of this audiocast series. As an entrepreneur, investor, founder, investment banker, and board leader the last 25 years, I'm fortunate for my many experiences within the family firm industry. A warm thank you to our live audience on LinkedIn today and for those listening in the future.
A brief comment on why I created this broadcast: private companies are a passion of mine, having grown up in a family of entrepreneurs and having engaged for two decades in deals, strategic transformations, investments, and boards with an array of fascinating family enterprises, family firms, and family offices.
I founded this series to offer a useful platform for listeners to hear from veterans, academics, and leaders in the vast family firm ecosystem. Whether you're a family business owner, building, running, or advising a family office, or just expanding your family office activities, I hope these conversations are useful and enlightening. And now it's time to turn our attention to our accomplished guest on today's episode.
[01:00] I'm here with Rick Holton, a friend of mine and family office owner, investor, and entrepreneur. Rick, it's great to have you today on the show.
Rick Holton: Thanks, Adam, glad to be here.
R. Adam Smith: Yeah. All right, good. Let's dig in. I'll talk about you briefly to our guests, and then we'll chat a bit. So Rick is from St. Louis, where I'm from, and he is involved in philanthropy, civic engagement, education, and environmental causes. He is on numerous boards, including a board at Washington University in St. Louis, and very active in nonprofits there. He is also a former chapter chair of YPO in St. Louis.
Rick earned a double major in engineering and economics from Vanderbilt University—it's a great school—and an MBA from the Olin Business School at WashU in St. Louis. And then after his MBA, he launched his entrepreneur career and founded a company, and became a top business in that space, and later co-founded another company called Classic Car Studio, specializing in classic cars, one of my favorite things in the world.
[02:00] Later, about 15 years ago, he began angel investing, getting involved in venture capital, family office business. He founded an early venture capital firm called Cultivation Capital, and then later built FinTech, where he is a founder and general partner. And then went on to work with his family at the Herman Companies, a significant family office in St. Louis founded by his grandfather, Bob Herman.
He recently served as Chief Operating Officer and partner at the firm, and now he manages his own family office and direct investment company called Holton Capital Group, works with his brother Rob, and they actively oversee and support a range of investments. And recently, he invested in an independent investment advisor, Trilogy, which is delivering world-class MFO services to the market.
[03:00] So, great. Really happy to have you here today, Rick. Why don't you tell us a bit about what, like what are you working on right now?
Rick Holton: Oh, right now I'm focused on family for a couple weeks in Northern Michigan. Just had a kind of a kick-off meeting for family council. You know, one of the things that you steered me to talk about was, you know, keep the family together, what's your why? We do a lot of that in YPO, so we had our first meeting to explain to the rest of the family members how the YPO forum experience works. So we're going to translate our many years of forum into family.
[04:00] Neat format, and, you know, we're putting together a family constitution. So we just—it's hard to take people that haven't done this stuff and get them up to speed. So we have a series of smaller meetings to talk about how to do it and why to do it. And, you know, it's the family values, and it's really setting the culture in stone for what we want for future generations, which is why Rob and I put together Holton Capital Group to focus on the next generations.
So that's sort of the family stuff, and then the work stuff, I've got, you know, partners' meetings and a board meeting tomorrow morning, and all that regular normal stuff.
R. Adam Smith: Sounds good, and from Northern Michigan, which is beautiful, I see you occasionally in West Palm and St. Louis. We got to get you to New York more often. But I'm glad that you are already talking about the family constitution and the utility of that type of outline for governance and for legacy planning.
[05:00] Let's go back to, you know, what you're working on within the family office community with your family, and some of things you worked on there, and, you know, the type of sectors you focus on. We talked about agribusiness as well as wealth management, so tell us a bit about about that experience. And then also about the founding of FinTech, which is a very successful venture firm. And as you of course as you know, more and more families are involved in venture capital or forming their own funds, which they seed themselves.
Rick Holton: Yeah, that's a—it's a very wide and open question. I'll I'll frame it, I think, best this way is FinTech was a culmination of a lot of years of figuring out not just what I liked in VC, but also what I was good at. And, you know, a very scattered approach from my earlier days of Archangels and then Cultivation Capital to getting focused and putting a focused team together. That's what FinTech became. We launched FinTech in 2016.
[06:00] And FinTech has evolved a lot. We were one of really four firms that were FinTech focused in 2016, and then a lot of other people started jumping in because it's a hot space. For listeners that don't really know what FinTech means, um, it's moving money and moving information that has to do with money. So the things that we focus on at FinTech, um, you think of in insurance technologies and wealth management technologies.
[07:00] And we've also kind of gotten pretty deep because we built these relationships inside the office of the CFO, bill paying software, the wealth management we've got, you know, stock trading and accounting platforms and data management platforms. In bank tech, we actually have a bank tech fund—it's got 70 regional banks where the capital in it—and it was for them to have access to new technologies. Account opening is a big problem, and you've got, you know, your know your client stuff. And there's all these regulations that regional banks just they get beaten up on on fines and fees and compliance and all that. So a lot of the FinTech stuff is in the financial services space and bringing efficiency.
[08:00] We don't try to replace people, but we help you scale without adding a lot of people because that's what those industries have typically done, just add more people. But with that knowledge, it's it's helped us a lot, um, in the family office space to get more efficient. And our vision at Trilogy is to bring the world-class multi-family office services to the mass fluent.
A family office—you've been in the space for a decade or probably longer, but it's evolved from where you used to have to have a billion dollars to have a family office, then it was $500 million, and, you know, the new number is kind of a $100 million to justify the overhead of a family office. And we want to be able to offer that MFO experience to people with $25 million, and technology is the way you can do it. And so that's kind of the the merging of all this stuff I've been working on for the last 15 years, really.
[09:00] And yeah, so that's that. The the blend, the Harvard model of, you know, have public markets and have private markets to get better returns, um, I also think it's a lot more fun, but but we do um have a portfolio of direct investments as well as public markets. And I don't do public markets. I like other people to do that, so the investment in Trilogy, they can handle the public market stuff, and then that we're building out the private markets platform, which you and I have talked about, which is exciting because a lot of the family clients want access to that, but they don't know how to access it, and they don't know how to underwrite it. So we've got a private markets team that we put together to vet opportunities.
[10:00] And then managed assets. I believe in managers, I think managers are good managers know what they're doing, they've gotten focused. Most of our money at FinTech is from family offices. So, we're kind of showing people managers and we're showing co-investments with those managers and also direct source deals from our network because we have a lot of—it's a lot of YPO guys in our, you know, in our um in our group, so we see a lot of stuff from from other YPO members.
People are trying to buy out their parents or they find an opportunity to acquire a business from retiring people. You've got this, you know, $75 trillion of wealth transferring down to our generation. Well, a lot of that money is coming from the people running companies that don't have heirs that are taking over the company, so they're selling the company to private equity. So, the only way to get into that is by investing in that stuff for the wealth transfer, so that's all the positioning that I've been doing for the last uh the last few years.
R. Adam Smith: [11:00] That's good, thank you. I think there is an undercovered uh topic in the industry, which I talk a lot about on the podcast with multi-family office partners and owners, and some family office owners and practitioners and think tanks, authors. There's a lot of discussion on succession and this massive transfer we see in the data from Northern Trust and Ron Diamond at Camden, and J.P. Morgan of course.
But I think there is uh less coverage on the the reality of lack of succession happening and that there are more and more of the G0, G1 companies, like let's say let's say older generation old-school operating companies, um, that just increasingly at the margin have less and less um support or interest from the children to succeed the business. And so therefore, as we've discussed on the show, if there's no interest from the children there is no succession. There's there's either the continuity with outside management or you sell the company because that that passion connection is not there with the family.
[13:00] So, in that case, which we can talk about briefly later on on our conversation, is the topic of legacy, as legacy is not defined by just the company or money itself, it's defined by how each family, each owner, right, defines their own legacy with their business.
Back to FinTech, since you have come from the family office space and a wealthy investor group of investors, when you started FinTech, did you find it important to add more, I guess, facilitating and more efficient to talk to other family offices as LPs, as opposed to institutional investors?
Rick Holton: Well, we, um, let me state what I think you just said. There's some wind noise on your end. You're asking why FinTech gravitated toward the family office space versus institutional, is that correct?
R. Adam Smith: Yeah, the um family offices are, as you know, increasingly interested in investing with each other, um in direct deals, right? In operating companies and direct deals where there's like in the cap stack directly, but in a fund, I'm just curious about your experience raising funds for FinTech. I think you're on your multiple fund now, and what's that experience been like in coming from the family office background and being, you know, major position in the GP? Like, what that did that facilitate and make it um a bit more, let's say, relevant or or or or smoother on the fundraising front with those limited partners that are family offices?
Rick Holton: [14:00] Yeah, we got an early—an early taste of what the institutional investor looks like, and it's about having as many meetings as you can and kicking as many tires as you can, just so you can say no, so you can report to the trustees that you said no to, you know, 500 managers to pick the one that that's the absolute best.
And emerging managers is not an institutional investor play. Um, we had so much of our time wasted, and money. I mean, we spent a fortune on, you know, going out and meeting with these people, and they just wasted our time. Um, there were numerous occasions where we'd get flown up for the third meeting to, you know, to New York, just so they could have a 10-minute meeting to say no to us. Um, it was pretty offensive, and um we don't like wasting time.
[15:00] The family offices, if you if you meet a family office, we had a very unique um unique value prop. All of us were operators, we'd all run companies, and we were 20% of the LP, which is not normal. We all had our own money, we were investing our own money, and we picked 20%, so we could tell people, "We're doing this for the return on our investment, not the management fees on yours." That resonated with family offices that wanted exposure to FinTech but didn't know how to get into FinTech, and um so that's how we started, and we just built the LP base out of family. We have a couple of institutional investors, um, but for the most part, it's family offices, and family offices love to share opportunities with other family offices, so that's kind of um that's kind of how it played out. And, you know, we're we're we're on our fifth fund. One of them's—one of them's all banks, no, you know, no family office or individuals, but, you know, four funds are from family offices essentially, high-net-worth and family office.
[16:00] So, that was kind of, yeah, that was the genesis of of why we ended up in family offices, and um we get we've gotten really good at asking the right questions to qualify, so we don't waste their time or ours, because we value both. And if that answers your question.
R. Adam Smith: [17:00] Yeah, well, it's—it's useful to hear that statement as well for many people to respect time on both sides. There's the LP and the GP. There's the time that the investor is spending and to help them focus, and of course, there's the time of, let's say, the the principal side, which is which is valuable because no one pays you for that time, so that's a that's a good point to bring up.
Rick Holton: Well, also, hotel rooms and plane tickets, and Yes, those are expensive. Yeah, you sit in, you know, you fly to New York for an hour meeting, and, you know, a lot of times you can't be in and out in the same day, and you've got to be flexible if somebody has somebody else for you to meet, so we try to, you know, set a trip and and meet as many people as we can. But a friendly introduction is always going to go further than, you know, a cold call. You're never going to get in with anyone on a cold call, but the institutions to have three meetings, and the third one just to call you back to tell you no, that's an easy Zoom. But they don't respect—they don't respect the manager's time, and, you know, that's because they're paid to say no. So, it it can be offensive.
[18:00] There are some, you know, there are some that are—that are great people, but we've just had a much better experience with—with family offices, and I'll tell you what else, some of our best deals come from family offices because they're out looking at stuff all the time, and they've got their own syndication groups, so we get, you know, we've become kind of a—a sounding board for—for, you know, LPs that are looking at deals and they want our help underwriting the deals, and a lot of times we'll take lead and they co-invest. That's a match made in heaven, you know?
R. Adam Smith: [19:00] Rick, let's talk about the balance of ROI, of, you know, making money, but also doing good. So, just in general, let's say within the family office environment and your direct investing, and kind of what you're looking to accomplish with your direct investing, there's just—I'm not just talking about sustainability and—and ESG and philanthropy, but just that balance of really working hard to create high returns, but also thinking about where that wealth is going to go back into your team, back into your community, back into charities.
Rick Holton: Yeah, we look at the financial returns from an investment perspective. I think—I think philanthropy and investing are separate. I know there's a lot of social investing going on right now, um, which is fine if that's your, you know, if that's your family's ethos and what you want to do. But we underwrite for financial returns on financial investments, and then we look at the philanthropic giving, we do our own ROI analysis on that, you know.
[20:00] The greatest thing we focus on is, you know, our core values are family, finance, and fun, and, you know, when we look at it—at a deal, if it's not good people, if it's not a fun and interesting space, um, we're not going to enjoy it, then we don't do it. I won't do the best deal in the world if I don't like it, if that makes sense. I won't do the best deal in the world, financially the best deal in the world, if I don't trust and respect the people doing it, the managers, you know, running it, um, you know, that that stuff matters to us, so I mean, we look at the financial return with the people we're working with, and then if it's fun and interesting. There's so many opportunities out there, you got to—you got to pick and choose where you want to spend your time.
R. Adam Smith: [21:00] Thank you, Rick, for that. It's very refreshing to hear you say that, and of course, it's not easy to factor in passion and integrity and deep due diligence when investment opportunities are moving quickly. So, I think that's a very important element of the family office environment is to focus on the, you know, the integrity of your of your operating companies, of your affiliates, of your of your—the companies you're buying, and going deep in time with them, not just background checks but actually personal time with them, because these are—these are multi-year investments, right? You can't really—you can't really divorce an operating company very easily. It's—it's part becomes part of your life for several years, and, you know, I've seen you operate and talked about values with you, and I appreciate you bringing that up.
Rick Holton: [22:00] I can give you a great example. So, I—I met an amazing entrepreneur through a friend of mine who—who founded Ring. And, um, he said, "Will you meet with this entrepreneur? She's got something very interesting, I love your feedback." It's an—it's an ag-adjacent deal, okay? Well, in Missouri, and frankly, all through the—the Midwest, and now the biggest concern is the Great Lakes, the Asian carp have—have—have gotten into the river systems, and they're killing all the other fish. And, you know, they're—they're big, um, they're a delicacy in—in China, we export a lot back to China because their fisheries are all fished out.
[23:00] But, um, you know, this lady is harvesting the Asian carp out of the Mississippi, Missouri, and Illinois, and as you know, you know, St. Louis is the confluence of the—of all these big rivers. So, she's harvesting these fish and grinding them up into animal protein and making dog and cat food out of it, versus right now, if you go in and buy, you know, dog food or cat food from Purina, they're using up our food supply, salmon. You and I aren't going to go buy Asian carp at the grocery store, but we do buy salmon, so why grind up the salmon into dog food if you can use Asian carp, which ironically has higher fats, which you want for your dogs? It's got higher fat content and the oils that you want in your dog for their coat and all that. So, it's better to feed the dog the Asian carp than the salmon, and you're not cannibalizing our human food supply.
[24:00] So, I'm fascinated by this. It does something good because it's—you ask good, you know, doing good versus doing well, the ROI. Well, it's a phenomenal—margin profile. She needs help, which I'm an industrial engineer grew up in factories, love factories, she's building a factory, um I can help with—people to run the factory. We want to do fishing tournaments. Jamie was all geeked out about this. He actually was the largest—the best deal that didn't get funded on Shark Tank, and then obviously did very well and sold it to—to Amazon. He just went back in as CEO, by the way. But he invested on Shark Tank in a female entrepreneur that was doing sustainable—hog farming in Missouri, and now he's built that business up big, so he met, you know, this entrepreneur and asked me to meet with her.
[25:00] And now we're thinking about doing, you know, fishing tournaments and doing like make it a sport to harvest these carp to then turn around and grind it up into animal protein. And the reason I tell the story is, this just hits all my buttons. It's a—it's a great—margin profile, it's a very talented entrepreneur, she a Goldman Sachs banker and—and now she's gone down this path, she's a Wharton MBA and—and, um, just a rockstar, but I asked her, the final question I asked, "Why are you doing this?" And she just went on about how passionate she is about the environment, and she know she has to make money to satisfy investor requirements, and she can't build a successful business doing something good for the environment if it doesn't make money, which I think a lot of people miss. You know, there's never—they don't connect the dots saying, "This is good," and understand that to get funded, you need to do well. So, she's hit them both, so we're digging in on this one, and, you know, and this could be just a—a fun run and do something really good for the environment and do well while doing it. And if you do well, you can keep growing it, investing in it, and, you know, that's what I tell entrepreneurs is, make a bunch of money and we can keep making it bigger and better and do more things. So, it's—uh, you know, that's—that's kind of the—the story on that.
R. Adam Smith: [26:00] That's a good one, thank you for that, and that—that—that—um, the—the—uh, I guess the expansion and the—uh, the scalability of private companies as with a family investment backer is very relevant and important, right? Because the family office backer, as opposed to a fund, uh has more flexibility, and then you can compound, you can add other companies, you can hire more people, you can pivot the strategy, um that's—that's all very relevant. Thank you for bringing that up.
Rick Holton: [27:00] Well, that's a good point, and something to talk about because, you know, the difference in taking family office money is it's long-term with typically a mandate to—to do a specific thing, and our mandate is we don't need an exit, we don't need the money back, we want to enjoy the journey with you, we want to help where we can, we want to have fun. And, um, you know, as a manager wearing my FinTech hat, I get called every day saying, "When am I going to get money back?" So, you have to sell stuff if you're a manager because that's how you get paid, and you typically are looking for a three to five year window, so if you partner with a private equity firm, you are signing up to run hard, run fast, and you're going to have a new boss in three to five years, even if you don't want to sell it.
[28:00] So, if you want to invest for the long term, that's not—you know, that's not a private—a traditional private equity approach. There's firms like BDT that are starting to run these, you know, 16-year funds and they can hold companies for 7 to 10 years, and they—they manage their LPs saying, "Don't expect money back right away, that's not what we're doing, we're building long—longer term value." But I tell people, we could, you know, if—if everyone's happy with each other, we could still be in business in 20 years. And you can build long-term value if you can run a business for 20 years. So, it's—I like what you said about investing in the business and the people, and, you know, it's—it becomes generational versus, you know, a short period of time where you do the best you can and—and, um, you know, flip it over to somebody else.
R. Adam Smith: [29:00] That's good, thank you for enhancing that. I think there's the term of generational wealth, but there's also like generational investing, right? Like you're saying is, if—BDT is a great example, um, Harvard Group in St. Louis type, you know, hybrid type of firm. I think it's a really interesting topic, and we—I do cover it on the podcast, and it's increasingly relevant, so I encourage people to think about that—point of view from the family offices to look at that generational investing—across different, you know, CEOs, different strategic plans, different roll-ups, consolidations. This is where the—the significant wealth multiplier is created on a tax-efficient basis as well.
Okay, so moving on to, let's say, value systems, the last topic we'll cover today, um, there you know, you we've touched upon this a bit, of thinking about enjoying your investing, your passion, um, and you know, caring for your people. Maybe just uh talk a little about the value system that it—it imbues itself within your—your family office investing, that would be really—wonderful to hear your point of view on that value set.
Rick Holton: [30:00] No, I go back to the core values I talked about earlier, the family, finance, and fun. Like, I'm not going to work with somebody that I wouldn't want around my family, you know? It's the extended work family that we've all talked about for a decade and—and, um, you know, if I don't want you at dinner at my house, then I shouldn't be working with you. Um, so I think that's a—that's a very important thing.
On the finance, I—it's if people are money motivated and not passionate about what they're doing, I don't—I have not had good experience working with people that are just looking at dollars. They're not happy, they don't grind it out when things don't go the way they're supposed to go, they start looking for opportunities. And that's fine, that's their choice in life if they're—if their North Star is money, um, I just haven't had good experience with people that, you know, have the picture of the, you know, Global Express on their wall saying, "That's—that's my goal." Um, because any business has the ups and downs and, I mean, look at the stuff going on right now, the tariff stuff and all, you just don't know what—what's coming at you and you got to react.
[31:00] But people that have that—that higher purpose, um, you know, many times there's a—a spiritual side to it, there's the—the greater good, um, they're trying to solve a problem that they're passionate about and they're going to win at all costs, meaning they're just going to grind until they figure it out. That intellectual curiosity I think is where success lies.
R. Adam Smith: [32:00] Rick, thank you for that last piece of your point of view, really appreciate it and very admirable and important for everybody to to think about. Um, so about you, how would you uh like people to reach you? You've you're working on a couple different things, what is the best way to contact you, and also, what are the things you're interested in right now within the family office at Holton?
Rick Holton: The best connection is probably LinkedIn, um yeah sending a LinkedIn message, it's Rick Holton is the LinkedIn.
The my buckets, I've got a a focus on senior living. Um, all my friends' parents are aging and I'm I'm watching that, you know, the silver tsunami is happening, that that's great in wealth management with the $75 trillion of wealth transfer. Um, I feel like our generation is a working generation and not knowledgeable about wealth and how to manage it. Um, the downside of it is there's hundreds of thousands of beds that need to be built right now to accommodate all of these seniors.
[33:00] The big the big trend and I'm involved in it right now is aging in place, meaning keep your house. Um, and there's all these businesses now to to senior proof like we all baby proofed our houses, now you're senior proofing houses to accommodate our parents, because there's just not enough beds to accommodate. Um, so there's going to be another building boom. It's very challenging right now because there's not enough people in the trades to build all the inventory that's needed, um, so I'm involved with my board meeting tomorrow is the the only data provider on senior living, so thematically, I'm involved in a lot of senior living stuff. I have an art company that, um, you know, does art and signage for senior living facilities. So, I'm of very—I'm very focused on senior living because I want our seniors to be cared for, and over the next five years, they just can't be. There's not enough providers, um there's not enough beds, it's it's a scary scary proposition.
[34:00] I talked about the wealth management platform, that's something I worked on. I've known—I've known the founder from YPO for I think eight or nine years now, we've been very good friends, um we have the Spain same—same values, and so we joined with another YPO guy who's been in the family office space for 20 years, and we're putting this MFO together with a focus on, um, the estate planning. That's sort of the most important thing that people haven't done. Uh, why give your money to the government when you die, give it to your kids. So, you start with estate planning, and um and then you get into the other family office services. We've got tax compliance, um and advisory, we've got um a law firm that is affiliated with us—you got to keep them separate, but they're affiliated with us to help with the estate planning, but then also, you know, the tax planning inside the year. There's an estate plan and then there's the ongoing tax planning on different things. And then bill pay and travel and household management and, you know, jet management and all that stuff. So, that's all that stuff we're um we're working on there.
[35:00] And then, you know, I'm—I'm backing off of venture myself. Um, I think by '26, I'll be, you know, part-time on venture. Um, I believe in managers to do the—the heavy lift there and co-invest with them. It's a lot of work, um and and when I was young, it was fun doing all the travel and the and the work and everything, but I want to slow down on that part of it and get more focused on on the things I'm doing. So, that's um, you know, that's kind of the way I'm bracketing my time, if you will.
R. Adam Smith: [36:00] Yeah, makes a lot of sense, Rick, and also our families are important as the kids get older. Thank you for all of your wisdom today. I'm really happy to have you on the show finally and to see you um many times this year. I'm excited to watch Holton Capital, um everybody um can can reach out to Rick for elements for private investing that are relevant to Holton Capital, as he noted, and it's really great to have um you on the show as—as we cross over, you know, G1, 2, 3 going from more traditional operating companies to early stage companies, and then, of course, you're incubating and funding and building some earlier—some—some sort of de novo businesses and—and also thinking strategically about the themes that are relevant in today's society. So, thank you so much for—for joining today. I hope you enjoyed it, and—and, um, really appreciate your time.
Rick Holton: [37:00] You bet, a joy chatting with you always.
R. Adam Smith: This is R. Adam Smith signing off. Please stay tuned for the next episode of the Family Business Audiocast available live on LinkedIn, YouTube, and X.
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