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Sunday, Dec 10, 2023

Money Managers Hit Tech Circuit

It’s become routine for tech investor Mark Mullen: The phone rings and there’s a wealth manager on the line.

Looking for clients.

“They say, ‘We have a lot of resources. We have tax specialists, retirement specialists. With that newfound money, there are a lot of issues you need to prepare for,’” said Mullen, managing partner at Brentwood venture capital firm Double M Partners, parroting the legion of local money managers he says regularly solicit him and the tech entrepreneurs he knows.

As cash from venture capitalists has flooded into local tech companies in the past few years, wealth managers have followed – sponsoring dinners, schmoozing at tech industry events, and cold-calling investors and entrepreneurs alike, all in the hopes of managing some of the millions of dollars of new tech wealth.

“It’s highly competitive,” said Darell Krasnoff, senior managing director at Bel Air Investment Advisors, a Century City firm that manages money for tech clients. “It’s no secret it’s an area where there’s a lot of wealth being created.”

Money managers have always targeted potential clients in up-and-coming industries, but the tech boom is different. Tech entrepreneurs often are young and have different needs – and they’re creating wealth so quickly that wealth managers are changing how they develop new business.

For example, they are sending young associates to networking events, combing through contacts to find ins with tech entrepreneurs and touting their own tech capabilities. And instead of going after established business owners with millions already in the bank, they’re targeting founders and early employees of startups, hoping some of them will become multimillionaires, said Bruce Munster, a managing director with Morgan Stanley Wealth Management in Woodland Hills.

“Just like a VC invests in 10 or 12 companies hoping a few will be successful, we invest time and effort into lots of companies,” he said. “We know only a handful will become profitable clients.”

No minimum

As they compete for young tech money, some wealth managers are reconsidering the types of clients they’ll do business with.

For instance, Munster and Eric Johnson, a managing director in Morgan Stanley’s Century City office, typically work only with clients who have at least $10 million in investable assets.

But both men are rethinking those minimums, waiving them for clients they believe could hit it big.

“I’ve probably done accounts under $1 million,” Johnson said. “Competition is so fierce now that if we don’t work with that guy at that early stage, someone else will establish the relationship. It’s forced us all to go downstream.”

In some cases, that means going so far as to spend time and effort on clients who have no money to manage.

Munster said he has been working with the founder of a local e-commerce startup and has introduced him to a corporate attorney, an auditor and a few private equity firms, even though the founder doesn’t have a cent under Munster’s management.

“We sat and listened to what his needs were and then we brought in the best of the best to address those needs,” he said. “I haven’t even opened an account with that client. But if he sells his business next year or the following, he’s likely to get more than $50 million. That would be great.”

Social networks

To find those next big customers, money managers are attending more tech networking events, buying more cocktails, and generally spending more time socializing in Santa Monica and other industry hubs.

Susan Moffat, a banker with JPMorgan Private Bank in Century City who focuses on tech clients, said her social calendar fills up quickly.

“Because the community is so social, I get to interact with clients and prospects on a fairly regular basis,” Moffat said. “You get to know them and they get to know you.”

Gerber Kawasaki, a wealth management firm in Santa Monica with clients including employees of Google Inc., Twitter Inc. and Santa Monica video game publisher Activision Blizzard Inc., has hosted tech events of its own and the firm’s advisers are regulars at local tech get-togethers.

Like the clients they’re going after, Gerber Kawasaki advisers are mostly young – age 28, on average. Ross Gerber, the firm’s chief executive, said that youth helps attract young tech clients.

“They’re meeting with an adviser their own age, not with someone their dad’s age,” Gerber said. “They don’t want a father figure. They want a peer.”

Along with making the rounds at events, managers and advisers are poring over their lists of contacts, looking for acquaintances who can help them connect with promising entrepreneurs. Referrals have always been part of the wealth management business, but managers say it’s especially important amid the fierce competition for tech clients.

Johnson of Morgan Stanley said he always checks LinkedIn for connections to a prospective client and will ask mutual friends if he can name-drop them when trying to set up a meeting.

“There are hundreds of enterprising young wealth managers cold-calling people,” he said. “If I just said, ‘This is Eric from Morgan Stanley,’ people would delete the message before listening to the rest of it.”

Wealth managers also use their Rolodexes to entice tech entrepreneurs. Wealth managers know big players in any number of industries and sharing a helpful contact with a tech entrepreneur can go a long way toward securing a relationship.

Ben Katz, a tech and e-commerce entrepreneur and chief executive of Brentwood debit-card issuer Card.com, said a wealth adviser from a big firm recently introduced him to another entrepreneur in the world of financial technology. Katz said he’ll remember that hook-up when it comes time to choose a wealth manager.

“Down the line, having introduced me plays in their favor,” he said.

Different needs

Until tech entrepreneurs sell their company or take cash off the table after a big funding round, most have little to invest. And that makes them different from typical wealth management clients.

“These young people are running into a ton of dough all at once, and possibly never again,” Gerber said. “Your typical doctor or lawyer, they earn a great income, but they’re never going to have that type of windfall.”

Such paydays mean suddenly having to deal with issues they haven’t considered before, said JPMorgan’s Moffat. Should they buy a home? Do they want to set up a charitable trust? Do they plan to have kids – even if they’re still single?

“It’s about getting them to think long term,” Moffatt said. “We can advise them on how to hold their assets to help set up for the next generation, which might not even exist yet.”

Another common thread is that, after cashing out, tech entrepreneurs tend to want to invest in other tech companies, said David Regan, West Coast head of investments for JPMorgan.

“We find people like to invest in what they know,” Regan said. “They feel they have a knowledge advantage and they’re able to have greater skill in determining if something will be a successful investment.”

Managers say they don’t try to talk clients out of those deals, but rather urge them to limit their venture investments to a small piece of their net worth to avoid having too much of their money tied up in a single industry.

Young tech clients also tend to expect real-time information about their investments, not just monthly or quarterly reports. Regan said he’s found tech clients want that information in different forms. For instance, rather than sending a prospectus detailing the ins and outs of a potential investment, the firm will send a video that features a portfolio manager talking about the investment.

“Clients can watch it on their phones,” Regan said. “It really enables us to connect with our clients in a way that they like.”

Bel Air’s Krasnoff said tech clients have pushed his firm to be more tech-savvy in creating and distributing their reports.

“They want our tech to be better than it is,” he said. “I had never before had clients who send me screenshots of what they didn’t like about our reports.”

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