Silicon Valley’s $585 Billion Problem

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VCs have pumped up the value of the “unicorn” startups. Now tech IPOs are in trouble. Good luck getting out.

Of all the Silicon Valley IPOs in the past couple of years, Lending Club’s might have been the surest bet of all.

The San Francisco peer-to-peer lender is a star in the world of “fintech,” a growing sector made up of financial technology companies bent on disrupting the traditional banking sector. Its backers include venture capital royalty such as Kleiner Perkins and Union Square Ventures, not to mention Google (GOOG) and Alibaba (BABA). The startup’s gold-plated board of directors includes luminaries such as John Mack, the former CEO of Morgan Stanley (MS); former Treasury Secretary Larry Summers; and Mary Meeker, the one-time doyenne of Internet IPOs who is now a Kleiner partner. In other words, Lending Club (LC) had assembled a very smart-money crowd. Its much-buzzed-about offering was viewed, understandably, as a slam dunk.

In December 2014, led by underwriters at Morgan Stanley and Goldman Sachs (GS), Lending Club priced its shares at $15, above the high end of the proposed range of $12 to $14. The IPO was 20 times oversubscribed and instantly gave the company a market value of nearly $6 billion. On the first day of trading, Lending Club’s stock jumped almost 70% before pulling back to close at $23.42 a share, a one-day pop of 56%. For shareholders who got out quickly, it went in the books as another very successful offering.

Then reality set in. Lending Club’s stock peaked about a week after its IPO, at nearly $26 a share, and has been retreating ever since. Never mind that the startup delivered extraordinary financial results in its first year as a public company: Lending Club’s operating revenue was up more than 100% in the first nine months of 2015 compared with the same period in 2014, and its Ebitda, a measure of earnings before subtracting expenses such as interest and taxes, was up more than 200%. The stock recently traded around $8 a share, nearly 50% below its $15 IPO price.

Naturally, Lending Club CEO and co-founder Renaud Laplanche wishes the stock price were higher. But he’s trying to look past short-term vicissitudes. “Part of the main reason for going public was to continue to establish Lending Club’s brand and credibility,” he says. “We’re building a big company. It’s going to take a very long time, but we want to do it in the public eye with full transparency. I think from that standpoint, we got rewarded. I think the Lending Club brand is a lot more established now than it was a year ago.”

That may be true with customers and bankers, but ask any retail investor who made a bet on Lending Club at around $20 a share about the company’s brand today, and the response is likely to be a grimace followed by a torrent of vitriol.

Unfortunately the Lending Club story is not an isolated case. Time and time again during the current IPO cycle, Wall Street underwriters–egged on by ambitious CEOs, hungry venture capitalists, and favored institutional investors–have hyped one technology IPO after another. The bankers price the offerings for perfection, watch them soar on the first day of trading to deliver the coveted first-day spike, and don’t stick around to offer an explanation after the shares plunge below the first-day price. (Morgan Stanley and Goldman Sachs declined to comment for this story.)

Welcome to the world of zombie tech stocks–once-highflying IPOs wandering aimlessly in the wasteland of the public equity markets and understandably unloved by investors. Many have familiar names, such as Zynga (down about 75% from its IPO price), Twitter (down 30%), and Groupon (down 85%). Online craft marketplace Etsy recently traded 56% below last year’s price at IPO and 77% under its first-day close. Others that are less well-known–like Nimble Storage (67% below IPO price)–have been just as disappointing.

To be fair, some major tech IPOs have soared in recent years, among them LinkedIn lnkd, Tesla Motors tsla, and, after a rocky and controversial start, Facebook fb. But these are the exceptions. The detritus far outnumber the success stories, raising the question, Is the method by which companies go public as broken and inequitable as it ever was? That would certainly seem to be the case. And the problem is especially acute when it comes to tech companies for which relentless forward momentum is key not only to pleasing investors but also to attracting talent and keeping their competitive edge.

This set of facts doesn’t bode well for the current wave of talked-up technology companies in the IPO pipeline–the so-called unicorns, or private startups valued at $1 billion or more by their investors. This once-rare species of startup has proliferated lately in Silicon Valley and beyond–from headliners such as Uber and Airbnb to lower-profile newcomers like Apttus and HelloFresh. Last year Fortune identified more than 80 unicorns for a cover story on the phenomenon; by our most recent count, that number has grown to 173.

According to CB Insights, a research firm that tracks venture capital investments, private investors have plowed some $362 billion into startups in just the past five years.

That means that a tremendous backlog of potential technology IPOs is building up just as the stock market is beginning to look very wobbly after its nearly seven-year bull run. Indeed, U.S. stock indexes began 2016 with their worst first-two-week period in history. The S&P 500 fell 8% in the first 10 trading days, and the S&P tech sector underperformed the broader market by a full percentage point.

For an already weakening tech IPO market, the turbulence in stocks is a punch to the stomach. In mid-January, IPO research specialists Renaissance Capital put out a special report called “Exploring the Disappearing Technology IPO.” The trends it identified were not encouraging. From 2012 through 2014, according to Renaissance, there were an average of 36 venture-backed tech IPOs per year. But in 2015 that number dropped to 23, and only seven of those offerings happened in the second half of the year, partly because of a stock market correction in August. Though the average time from founding to IPO reached a high for tech deals in 2015, the profitability of the typical technology company going public has plunged into negative territory over the past couple of years. The median Ebitda for tech companies going public in 2015 was -$9 million.

All signs point to a continued slowdown in tech IPO activity in 2016, says Kathleen Smith, a principal at Renaissance and the company’s manager of IPO-focused ETFs. She says it won’t take long for the unicorns to feel the chill as well. “What’s happening now is just going to take the bottom out of these private valuations, many of which are imaginary,” says Smith. “And this valuation reset is going to have a very negative effect on new funding.”

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It appears that a reckoning is coming in the tech world. The combined value ascribed to the 173 unicorns by their investors is a stunning $585 billion–an especially astonishing figure given that so many of them aren’t even close to profitable. Sky-high valuations–driven in part by unicorn mania and an influx of money from nontraditional (and less disciplined) venture investors–have limited the number of potential acquirers for a lot of the buzziest companies.

A number of startups may have hoarded enough capital to ride out the rough patch, but even those that survive could experience mass defections and morale-killing “down rounds.” In mid-January, for example, check-in app company Foursquare raised $45 million in new venture funding but was forced to accept a valuation of less than half the $650 million value it was given by its investors a few years ago. “I imagine there’s going to be some pivots in some business models,” says John Gabbert, founder and CEO of VC data provider PitchBook.

There is also certain to be increased pressure from the VC community for any tech company on the verge of readiness to seek the “exit” of the IPO process even as it is shrinking. But every IPO currently trading below its IPO price creates a negative feedback loop, making the odds of the average unicorn getting out a little longer every day. And it doesn’t help that the process is fundamentally rigged against them.

To appreciate the extent of the tech IPO problem, it helps to understand a bit about the IPO process itself. The system has long been designed to benefit the Wall Street underwriters and their favored clients–venture capital and buyout firms, as well as the big institutional buyers of IPOs–at the expense of individual and retail investors, who have been brainwashed into thinking they are getting their hands on the Next Big Thing.

The venture capitalists or private equity investors–who finance the company while it is private–also have a big say in the IPO process. They want to make money on their investment, of course, and generally the most they possibly can. They push the underwriters relentlessly to get the highest price possible for the IPO, securing for them the biggest profit. But near the end of the process they begin to remember that they’re not selling all their shares in the IPO. At that point they actually prefer a dynamic in which the stock is actively hyped–to generate enthusiastic demand for it–but the “float,” or the percentage of the company’s shares sold in the IPO, is kept small (say, around 15%) to curtail supply.

High demand for something in short supply leads to one outcome: a higher and higher price for the stock when it finally hits the market. That way the VCs can double dip: They can crow a bit and notch a big gain on their initial investment (perhaps even selling some shares in the offering), but can also know that they were clever in hanging on to most of their stock, especially when the stock moves up smartly on the first day of trading.

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The big Wall Street underwriters set the rules of the game. “Morgan Stanley and Goldman Sachs will tell you it’s not a successful IPO unless there’s a 20% to 30% pop,” says John Buttrick, a partner at Union Square Ventures. “That’s the way they get graded with their clients: Did the stock trade up after pricing? Much of the IPO machine is focused on generating a sugar-rush spike in the trading price during the two to four weeks after IPO. After that, the market takes over: ‘Sorry, not my problem.’ They profess to take a long-term view, but the data shows post-IPO stocks are very volatile in the case of tech IPOs, and that is not a problem the underwriters try to address.”

Another important constituency for IPOs is the big institutional buyers of them–mutual fund firms such as Fidelity, T. Rowe Price, and the Capital Group. They like the first-day pop too, because that means they make money instantly. Twenty-five years ago Peter Lynch, when he was running Fidelity’s Magellan Fund, used to refer to IPOs as “sunset stocks”–as in, “the sun never sets on an IPO in my portfolio.”

Interestingly, it’s a system that has also defied innovation. In the past decade or so, some clever new ways have been created for companies to raise the equity capital they need without going the IPO route. There are now a number of secondary markets where equity capital can be raised privately and where insiders can sell their stock to new investors in order to get some liquidity in ways that were never before available. The JOBS Act, which took effect in 2013, allowed smaller companies to file prospectuses privately and raise capital much more discreetly than in the past, as a way to get some of the benefits of a public offering without the many negatives of excessive scrutiny and regulation. These changes have in fact helped enable the rise of the unicorns. And yet Wall Street hardly appears to have lost its leverage in the IPO process. If anything, the opposite is true.

The aftermath of the financial crisis–a world in which there are fewer and fewer underwriters, and many of the European banks have all but disappeared from the underwriting market–has reinforced the power of the established IPO underwriters to keep the status quo working for them and their best customers.

That means that despite the hype that still surrounds them, the growing universe of unicorns out there has little choice but to submit to the IPO cartel if it wants to raise a significant amount of equity capital. For every Uber, which seemingly attracts as much capital as it wants in the private market at increasingly stratospheric valuations, there are a hundred companies that must submit to the powers that be when it comes to raising new money.

As an example of how regular investors get the short end of this process, consider the cautionary tale of GoPro (gpro), the company behind every adventure athlete’s favorite digital camera–perfect for attaching to your head so that you can record your wild-ass snowboarding and base-jumping exploits.

Remember how cool Nick Woodman, GoPro’s founder and CEO, seemed in all those interviews that cropped up before and after his company’s IPO? When GoPro went public, in June 2014, at $24 a share, the company raised $491 million, and the lead underwriters at J.P. Morgan Chase, Citigroup, and Barclays pocketed more than $28 million in fees. Right on cue, GoPro’s stock sprinted up nearly 50%, delivering that all-important pop. Within three months, on Sept. 30, 2014, it was near $95 a share, giving the company a market value of more than $13 billion.

These days Woodman isn’t talking so much. (He declined a request to be interviewed for this story.) For months GoPro’s share price has been plummeting faster than a mountain biker on a headlong descent. In mid-January, trading in GoPro’s stock had to be temporarily halted after the company warned of disappointing fourth-quarter results and said it planned to lay off 7% of its workforce. Lawyers representing shareholders quickly slapped the company with class-action lawsuits. GoPro’s shares recently traded for less than $12, more than 50% below its IPO price.

It’s been a painful reversal. But many of GoPro’s institutional investors from the IPO probably still have fond memories of the stock. That’s because they got to buy it at $24 and watch it soar to $36–then unload it for a quick 50% gain. What’s not to like?

And if both the venture capitalists and the institutional investors are happy with the first-day pop, then the underwriters are happy too, because their biggest repeat customers are both the private investors and the big institutional investors. To be sure, their high fees–the underwriting charge in the GoPro IPO was 6%–are nice too. But the real goal is making sure that their customers are happy and do business with them again and again. At Goldman Sachs, one of the firm’s mantras is to be “long-term greedy,” and the IPO underwriting process is a perfect example of how it puts that philosophy into practice. It’s one of the few businesses in the world today that has remained virtually impervious to disruption by Silicon Valley.

William Hambrecht has been talking about changing the way IPOs are underwritten and priced for close to 20 years, since he left his firm Hambrecht & Quist (which was then sold to what is now J.P. Morgan Chase) and started W.R. Hambrecht & Co. in 1998 with the hope of upending the way the Wall Street cartel manages and markets IPOs. One of the firm’s high-water marks came early in its existence when it was one of the underwriters of the Google IPO, in August 2004. (There were 31 underwriters in all, led by Morgan Stanley and Credit Suisse First Boston.)

Eleven years on, people may no longer remember how controversial it was at the time for Google to have adopted Hambrecht & Co.’s auction strategy for what became the most important company in a generation. After conducting an online Dutch auction for the Google shares, in which investors named the price they would pay and orders were filled in the order of those who bid the highest price, the underwriters priced the Google IPO at $85 a share, below expectations. The stock closed on the first day at about $100 a share, up 17%. (In the end the lead underwriters didn’t strictly adhere to the auction strategy in its purest form.)

Experimenting with a different IPO pricing model certainly didn’t hurt Google. The tech giant’s stock is up some 1,500% from its IPO, and the company (renamed Alphabet last year) has a market value approaching $500 billion, second only to Apple’s AAPL. Its stock chart looks like one side of the Matterhorn. But very few other companies have been willing to go public the way Google did, through an auction process. (Some have, including Morningstar morn, up more than 400% from its IPO, and Interactive Broker Group ibkr, up about 50%.) Rather than a turning point, the Google IPO is remembered more as a historical footnote.

Hambrecht thinks the way IPOs are manufactured and sold remains a problem. “It really is a system that is broken,” he says. He thinks the “traditional approach” needs to change but knows that the big underwriters won’t do it, despite their understanding, intellectually, that the auction approach is a fairer system. They just make too much money as things currently stand. “The underwriters stick to the traditional approach because, first of all, it allows them to discount the pricing,” he continues. “It gives them selective allocation to their best customers. And they’ve tried to keep a knowledge advantage, so it’s really a proprietary product through the first six months or a year of the trading. All of those things enhance the profitability to the underwriter.”

He says that when, say, Alibaba pops from $68 a share to $115 a share, as it did in the first few months after its IPO, the underwriters cash in because their institutional clients have made a lot of money and pay them back in kind over time. “The people who buy it in the aftermarket are the shareholders who end up, in effect, holding the bag,” he says. Hambrecht doubts that the system will ever change unless a reform is forced on the banks legislatively (as was briefly considered after the Facebook IPO) or their vicelike grip on the large IPO business is disrupted. “It’s deeply entrenched,” he says.

In fact, Hambrecht is so resigned to the inevitable power of the name-brand underwriters that he’s decided he won’t try to fight them anymore. Instead, he’s returned to what he did once upon a time at Hambrecht & Quist: Taking smaller startups public. His latest eponymous firm, Hambrecht & Co., specializes in underwriting for companies that have valuations below the unicorn threshold and garner less interest from the big banks.

Despite the deck being stacked against them during the underwriting process, some executives at newly public companies say they wouldn’t change a thing. In this camp are James Park, the co-founder and CEO of Fitbit fit, and William Zerella, its chief financial officer.

Last June, Fitbit, a maker of fitness tracking devices, priced its IPO at $20 a share, above its indicated range. Morgan Stanley was the lead underwriter. The stock opened up 52% right away and ended up about that much, giving the company a market value of $6.5 billion and making Park nearly a demi-billionaire. In November the company completed a secondary offering, at $29 a share–below the $31.68 a share where it had closed the day before–in which 14 million of the 17 million shares sold came from its VC financiers. It was, in part, a move to reduce the downward pressure on the stock as the expiration of the six-month lockup period loomed. These days, after a poorly received new-product offering, Fitbit trades below its IPO price.

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But despite the stock’s roller-coaster ride, Park and Zerella say they couldn’t be happier with how the IPO was handled. Zerella credits his bankers for the way they ran the process. “They understood our story and were very helpful in articulating it to the Street,” he says, although it also helped that Fitbit is a leader in its space and very profitable.

Park says that he and his management team were excited by the IPO and by being on the floor of the New York Stock Exchange when the stock first traded. He has no regrets about not pricing the IPO higher to get more of the offering proceeds for the company. Park says he understands the players at the table have to get their cut. “I think the worst outcome would have been for it to trade below the offering price [in the days after the IPO],” he says. “It was a delicate dance, and I feel that we struck the right balance in the price of the deal. And the pop on the first day really gave the company a lot of great momentum in the press and with employees.”

Other perks: Park says the Fitbit IPO let the world know just how profitable his company is–with Ebitda margins of around 23%–and how, despite some formidable competition from Apple and others, Fitbit remains the industry leader. He points out that Fitbit now has a currency to use for potential acquisitions and says that going public has given the company’s employees something to root for together–its stock price. “It’s been a great event,” he says. “It really cements us as a world-class company.”

Laplanche of Lending Club, for his part, tries to put his company’s IPO experience in the most charitable light. But he can’t help scratching his head about how the stock has traded since those hype-filled early weeks after the IPO. He says that if the stock hadn’t jumped past $25 a share and had just traded at around $15, there would have been less disappointment, especially for the retail investors. “That being said, if they made a long-term investment, then I’m very confident that we’re going to continue to deliver great results,” he says.

No thanks to the standard IPO process. One of the reasons behind the volatility of Lending Club’s share price is the simple matter of supply and demand. The underwriters at Goldman and Morgan Stanley argued for a float of between 10% and 15% of the shares outstanding, and in the end it was around 15%. That created scarcity value initially, leading to the coveted opening-day pop. That’s the good news. The bad news came at the end of the six-month lockup period, when the Lending Club’s VC investors started selling their shares into the market.

Whether it’s a coincidence or not, Lending Club’s share price moved from about $19 in early June 2015 to a low of around $11 three months later–in effect tracking the increase in supply of stock during the year as the venture capitalists started unloading their stakes in the company.

Laplanche, of course, understands these supply-demand dynamics. But he’s not sure less sophisticated investors appreciate the subtleties of lockup periods and floats. “It can be a bit frustrating, particularly for people who wonder, Okay, what’s wrong with the company? Is there something there that drives the stock price?” he says. “I think we’re a good case study for it because we continue to report good news after good news, so there’s really no fundamental you can point to to explain the stock performance. Really, all that’s left is supply and demand of shares.”

All indicators point to Lending Club being more than strong enough financially to soar past its post-IPO doldrums. In an increasingly tough environment for tech companies, some of its peers may not be.

Written by William D. Cohan of Fortune 

(Source: Fortune)

Struggling Macy’s Just Brought In a Billion Dollars Online

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Pete Bellis/Flickr

Macy’s may have had trouble getting holiday goers to visit its huge department stores, but its website and mobile app sure grabbed a few clicks.

Macy’s generated its first billion-dollar month of sales from its digital platforms in December, said Yasir Anwar, group vice president of digital technology for Macy’s and Bloomingdale’s. Anwar, speaking Sunday at the annual National Retail Federation’s convention in New York City, added that Black Friday saw more than half of Macy’s web traffic come from smartphones — another first.

Macy’s no longer breaks out what percentage of its business is derived from digital sources as compared with physical stores, arguing the lines between the two have become too blurred. But, there are several clues to suggest the digital business is growing while the brick and mortar business is shrinking.

“We are buoyed by a very strong performance in our digital business, with continued double-digit increases in online sales,” said Macy’s chairman and CEO Terry Lundgren in a Jan. 6statement. Lundgren, trying to thwart pressure from activist investor Starboard and reawaken a stock price that has plunged 40% in the past year, added, “In November/December, we filled nearly 17 million online orders at macys.com and bloomingdales.com — a new record for our company, and an increase of about 25% over last year — based on significant new fulfillment capacity, site functionality and aggressive digital marketing.

At least Macy’s is able to hang its hat on something in a challenging holiday season.

The company warned on Jan. 6 that same-store sales plunged 4.7% for the months of November and December combined. Same-store sales for its fourth quarter, which runs through January, are seen falling by about 4.7%, worse than previous guidance for a decline of 2% to 3%.

Macy’s also lowered its full-year earnings guidance to between $3.85 and $3.90 a share from its prior expectations of a $4.20 to $4.30 a share range.

The company will close 36 stores by the spring as part of a broader reorganization. After those stores are shuttered, Macy’s will operate about 730 locations in the U.S.

Macy’s did not immediately respond to additional request for comment.

Written by Brian Sozzi of TheStreet 

(Source: The Street)

Billion-Dollar Bloodlines: America’s Richest Families 2015

Copyright Tracy O, Flickr
Copyright Tracy O, Flickr

Great fortunes don’t always last. New technology trumps the old, trends wane, management stumbles. Yet a few of the families who made FORBES second annual ranking of America’s Richest Families –we capped the list at 200 members this year — have withstood such challenges. Some, like the Huber family, have survived for six generations, dating back to the 1800s. Each of these clans is worth at least $1.2 billion. Collectively, they’re worth $1.3 trillion. Thirty-three newcomers join the ranks, including the Sackler family, whose company makes pain drug OxyContin; the Greenberg family behind Skechers shoes, and the Trincheros, owners of the fourth largest U.S. wine company.

The Walton family is the wealthiest family in the U.S. for the second year in a row. Six heirs of Wal-Mart founders Sam Walton and James “Bud” Walton together own about 54% of the global retailer. Forbes estimates their fortune at $149 billion — down from $152 billion last year due to a dip in Wal-Mart’s stock price. They are followed by the Koch family: two of the four Koch brothers, Charles and David, are politically active and run conglomerate Koch Industries, the second largest private company in the country. Coming in third: the Mars family, owners of the world’s largest candy company, maker of M&Ms and Milky Way, share an estimated $80 billion fortune. Frank Mars started selling candy from his kitchen in Tacoma, Washington in 1911.

Many of these families are behind well-known brands – Gore-Tex, Campbell’s soup, Estee Lauder cosmetics, Coors and Budweiser beer, Comcast cable TV, to name just a few. Some of the companies started by families on the list — like Publix Super Markets and Wegmans, benefit from a loyal customer base; those two supermarket chains are also partly owned by employees. Other fortunes lide in publicly traded companies. Still others are 100% family-owned businesses. Success comes in many forms.

Methodology

Unlike our flagship Forbes 400 list of America’s richest and our World Billionaires ranks, which focus on individual or nuclear-family wealth, America’s 200 Richest Families includes multigenerational families of all sizes, ranging from just 2 brothers to the 3,500 members of the Du Pont clan. Families needed a combined net worth of $1.2 billion to make the cut. (Note: We left out self-made entrepreneurs who founded their companies and already appear with their nuclear family on our Forbes 400 list. That includes Jack Taylor of Enterprise Rent-A-Car. Also absent are married couples like Forever 21 founders Jin Sook and Do Won Chang).

To value their fortunes we added up their assets, including stakes in public and private companies, real estate, art and cash, and took into account estimates of debt. For those with publicly traded holdings, we used stock prices from the close of trading on June 19, 2015. We excluded any assets irrevocably pledged to charitable foundations. We attempted to vet these numbers with all the families or their representatives. Some cooperated; others didn’t. Think we missed a clan?

NO. 20: BROWN — $12.8 BILLION

Founded by George Garvin Brown in 1870, Brown-Forman today makes some of the world’s best-known booze. That includes bar-shelf mainstay Jack Daniel’s, as well as Old Forester, the first bourbon bottled in America. The whiskey industry has been resurgent in recent years as consumers try new small-batch whiskeys and and rediscover old ones. Brown-Forman has tapped into that trend, too, making a big marketing push for its Woodford Reserve brand (now officially the bourbon of the Kentucky Derby) and Old Forester, which had been little known. The company also produces Finlandia vodka and Herradura tequila. The Browns own an estimated 51% of the publicly traded firm; George Garvin Brown IV, a member of the fifth generation, chairs the Brown-Forman board. At least 25 family members share the fortune.

No. 19: Johnson (Charles and Rupert) — $13.4 billion

The Johnson family fortune stems from Franklin Resources, a global investment management firm and mutual fund manager with nearly $890 billion in assets under management. Known as Franklin Templeton Investments, it was started by Rupert H. Johnson in 1947 as a retail brokerage firm on Wall Street. When Rupert retired in 1957, his son, Charles B. Johnson, took over and was later joined by his half-brother, Rupert Jr., in the 1960s. The company went public in 1971. Charles’ son, Gregory, is chairman and CEO, and his daughter, Jennifer, is COO. Rupert Jr. is vice chairman. The family owns about 35% of publicly traded Franklin Resources. Charles also has a large stake in the San Francisco Giants baseball team.

No. 18: Busch — $13.5 Billion

America’s first family of beer lost its business in 2008, when a group of Brazilian investors led InBev’s takeover of Anheuser-Busch. It was a stunning loss for a family that had been making beer since Adolphus Busch brewed his first batch of Budweiser in 1876. Prohibition almost put the company out of business, but his son August Busch Sr. survived by selling soda and ice cream. When Franklin D. Roosevelt repealed Prohibition, August reportedly sent a 24-beer crate to the White House. The family passed down the company through the generations but ended up selling an estimated 25% of the business from 1989 to 2008, leaving the family powerless to stop the $52 billion buyout bid. Seven years later, a branch of the Busch family is back in the beer business, albeit on a much smaller scale. Billy Busch founded William K Busch Brewing in 2011 with two lagers, Kraftig and Kraftig Light. Until recently, its beers were only distributed in Missouri and Illinois — but Billy insists it isn’t a micro-brewery and announced a major expansion into Texas in 2015.

No. 17: Dorrance — $13.6 billion

At least 11 descendants of one-time Campbell Soup Co. president and owner John T. Dorrance are heirs to his fortune. Together they own an estimated 50% stake in the company. Dorrance was a chemist who invented the formula for Campbell’s famous condensed soup in 1897 and became president of the company in 1914. His billionaire grandchildren Mary Alice D. Malone and Bennett Dorrance, as well as great-grandson Archibold D. van Beuren, sit on the board today. Charlotte Colket Weber, cousin of Malone and Dorrance and a devoted equestrian, stepped down at age 72 in November 2014 due to age limits. Heir John Dorrance III renounced his U.S. citizenship and moved to Ireland before cashing out his 10.5% stake nearly 20 years ago, reportedly to avoid capital gains taxes. Campbell Soup is now a global giant with more than $8.3 billion in revenues and brands such as Prego and Pepperidge Farm.

No. 16: Sackler — $14 billion

Brothers Arthur (d. 1987), Mortimer (d. 2010) and Raymond Sackler — all doctors — founded Purdue Pharma in 1952 after taking over a small, struggling New York drug manufacturer. The company sold several moderately successful products, like earwax remover and laxatives, but remained under the radar until the mid-1990s when Purdue began selling what amounted to morphine in a pill. OxyContin — a long-lasting, narcotic pain reliever — launched in 1995 and by 2003 Purdue was selling $1.6 billion of the product annually. But it quickly became abused by addicts who would crush the pills for a quick, intense high, sparking controversy and legal action against Purdue. The company paid more than $600 million in 2007 to settle charges with federal prosecutors that it had misbranded OxyContin as safer and less addictive than it was. Today, the company — still 100% owned by the Sackler family — generates more than $3 billion in sales in U.S., mostly from OxyContin. Separate Sackler-owned companies with similar products generate just as much money selling to Europe, Canada, Asia and Latin America. Purdue is once again facing a potentially enormous legal bill: a civil lawsuit by the state of Kentucky could reportedly yield damages in excess of $1 billion. Purdue denies wrongdoing in this case, noting that courts across the United States have dismissed similar cases against Purdue because evidence failed to establish the company’s marketing caused the alleged harm. An estimated 20 family members share the fortune.

No. 15: Hunt –$14.2 billion

Descendants of legendary wildcatter H.L. Hunt, the family has ranked among America’s richest since the 1960s. H.L., an inspiration for the character J.R. Ewing on the long-running TV series “Dallas,” had 15 children (one died in infancy) by three women. Today his descendants oversee discrete fortunes: Son Ray Lee oversees Hunt Oil; son William Herbert is a big player in shale; and daughter Caroline founded and later sold Rosewood Hotels & Resorts. His late son, sports magnate Lamar Hunt, is said to have named the Super Bowl, and his children still own the Kansas City Chiefs. In October 2014, his son Nelson Bunker Hunt, who tried to corner the silver market in the 1970s with brother William Herbert, died at age 88.

No. 14: Du Pont — $14.5 billion

The du Ponts own the nation’s oldest billion-dollar family fortune. It is also the largest, with an estimated 3,500 members. A prisoner during the French Revolution, E.I. du Pont fled Europe in 1799 for America, where he founded the company that continues to make his descendants rich two centuries later. DuPont started as a gunpowder manufacturer, later expanding into dynamite, paints, plastics, dyes and materials. Its scientists invented nylon, Kevlar and Teflon. Family members no longer run the company, which has evolved into a chemicals giant, but they still hold a substantial chunk of its shares. There is still an E.I. du Pont on the company’s board of directors. Pete du Pont was governor of Delaware from 1977-1985 and ran for president in 1988. Du Pont heir Robert Richards made national news in March 2014 when it came out that he had previously pled guilty to raping his three-year-old daughter. He was not the first member of the family to get in trouble with the law. In 1996 John E. du Pont murdered Olympic gold medal wrestler David Schultz. The story was retold in the 2014 film Foxcatcher, which was produced by another heir, Megan Ellison, daughter of billionaire Larry Ellison.

No. 13: Ziff — $15 Billion

Third-generation Ziff brothers shook up how they’ve been managing their family fortunes: In 2014 the billionaire brothers Dirk, Daniel and Robert shuttered their hedge funds in the U.S. and London, though they’re still using high-profile Ziff Brothers Investments to manage a portion of their investments. Eldest brother Dirk started his own family office Ziff Capital Partners within the past year. The brothers are also reportedly investing some of their billions with investors who were formerly at their hedge funds. The roots of their fortune date back to 1927 when their grandfather William Sr. first started his publishing business. Their father William Jr. built up Ziff Davis, which became best known for such trade publications as PC Magazine and Car and Driver, before selling it for $1.4 billion in 1994. The brothers who got the proceeds have since increased those proceeds tenfold.

No. 12: Lauder — $16.5 Billion

Queens, N.Y. native Estee Lauder started out selling homemade skin creams to women in hair salons. She founded the Estee Lauder cosmetics with her husband in 1946. The company has grown to encompass 30 brands of make-up, including Clinique, Bobbi Brown and MAC. The company board now includes her son Leonard, his son William (the current executive chairman) and Estee’s granddaughters Aerin and Jane, both of whom have spent their careers working for the firm. The Lauder family together controls 77% of the company’s voting power. Estee Lauder’s son Ronald, who is also the former U.S. ambassador to Austria and served as chairman of the cosmetics company, has recently spent time advocating for Jewish rights in the U.S. Congress and speaking out against antisemitism. Both Ronald and Leonard have also made names for themselves as impressive art collectors.

No. 11 Newhouse — $18 Billion

Brothers Samuel (“Si”) and Donald Newhouse run Advance Publications. In March, the company agreed to sell its majority stake in Bright House Networks to Charter Communications for $10.4 billion. Bright House is a cable TV and Internet service provider with customers in Florida, Alabama, Indiana, Michigan and California. The deal is awaiting shareholder and regulatory approval and is expected to close by the end of the year. The brothers also own Conde Nast, publisher of magazines such as The New Yorker and Vanity Fair; the nation’s largest privately-held newspaper chain; and a stake in Discovery Communications, the operator of cable and satellite TV networks such as the Discovery Channel and TLC. Si and Donald inherited the company from their father, Sam Newhouse (d. 1979), who started out with one newspaper in New Jersey. Si reportedly stepped down from managing the magazine side of the business in 2011, but remains chairman. Donald oversees the newspaper division, which has over 30 editions including The Times-Picayune in New Orleans and The Plains Dealer in Cleveland. Donald’s son, Steven, is responsible for day-to-day management of the newspapers.

No. 10: Duncan — $22.4 Billion

Born poor in rural Texas, Dan Duncan was raised by his grandmother from age 7 on, following the death of his mother and brother. He eventually struck it rich in oil and gas pipelines. When Duncan died in 2010 at age 77, he left his nearly $10 billion estate to his four children: Randa Duncan Williams, Milane Frantz, Dannine Duncan Avara and Scott Duncan, all of whom got equal shares. The family fortune has since more than doubled, thanks to generous dividend payouts and a rise in the stock price of pipeline behemoth Enterprise Products Partners. Randa, the eldest, is chairman of the board. Scott, 32, is the youngest American billionaire to have inherited his wealth.

No. 9: Johnson (Edward)– $26 Billion

The Johnson family owns 49% of money manager Fidelity, the second largest mutual fund company in the U.S. (behind Vanguard) with $1.8 trillion in assets under management. Edward C. Johnson II (d. 1984) founded the Boston-based company in 1946. His son, Edward “Ned” Johnson III, ran the company from 1977 until last year when he stepped down as CEO. He remains chairman of the board. Ned’s daughter Abigail replaced him as Fidelity CEO in October 2014. Ned’s son Edward Johnson IV runs a family-owned real estate company. Another daughter Elizabeth is not involved at Fidelity.

No. 8: Johnson (S.C.) — $28.8 Billion

The Wisconsin family created many of the cleaning products in American homes including Ziploc, Windex, Glade and Shout. The company founder, S.C. Johnson, for whom the business is named, started a parquet flooring company in 1886 and developed a floor wax for his customers two years later. His son Herbert Fisk Johnson, who ran it until his death in 1928, died without a will, leading to a family struggle over the inheritance. Ownership of SC Johnson was divided 60-40 between his two children, Herbert Fisk Jr. and Henrietta Johnson Louis. Their descendants still own 100% of the $9.6 billion (estimated sales) company. Today, Herbert Fisk III, great-great grandson of the founder is CEO.

No. 7: Pritzker — $30 Billion

Powerful Chicago family is best known for creating Hyatt Hotels. The family spent the 2000s feuding over trusts and eventually divvied up the fortune. Penny is Commerce Secretary; Thomas chairs Hyatt Hotels. Gigi is a movie producer (Draft Day); John owns boutique hotel group Commune Hotels; brothers Anthony and JB run Pritzker Group investment firm; Karen and her husband Michael are active investors. Liesel Pritzker Simmons, who sued her father and the Pritzker family in 2003 (the family settled), is an impact investor. Altogether there are 11 individual billionaire members of the family. Roots of the fortune date to A.N. Pritzker (d. 1986), who with his sons Jay and Robert created Hyatt Hotels and invested in holdings like industrial conglomerate Marmon Group, now owned by Berkshire Hathaway.

No. 6: Hearst — $32 Billion

Orson Welles’ Citizen Kane was largely based on publishing magnate William Randolph Hearst, who first placed his name on the masthead of the San Francisco Examiner as “Proprietor” in 1887. His son, William Randolph Hearst Jr., became a Pulitzer Prize winning journalist. His grandson William R. Hearst III now chairs the modern day Hearst media empire, which includes 49 newspapers, nearly 340 magazines around the globe and valuable stakes in cable TV channels ESPN, Lifetime and A&E. Two years into the leadership of CEO Steven Swartz, the Hearst Corporation continues to grow, delivering record revenues north of $10 billion, while investing in up-and-coming media outlets like Vice and BuzzFeed. Over the years, the family had its fair share of scandals, from the kidnapping of Patty Hearst by a guerrilla group in the 1970s, to a nasty divorce between the late John R. “Bunky” Hearst Jr. and his wife Barbara that revealed some of the inner workings of the family’s secretive trust.

No. 5: Cox — $34.5 billion

The Cox fortune dates to 1898, when James M. Cox purchased the Dayton Evening News. The company subsequently expanded to TV, radio and more: Cox Enterprises includes Cox Communications (cable TV, broadband) and Cox Media Group (newspapers, TV, radio stations), and the company is now adding to its automotive assets. In June 2015 it announced a $4 billion deal to acquire publicly traded DealerTrack, a maker of software for car dealerships. Through Cox Enterprises, the family already owns AutoTrader.com, Kelley Blue Book and Manheim car auctions. The fortune is divided between James Cox’s daughter, Anne Cox Chambers, and his grandchildren, James Kennedy and Blair Parry-Okeden; Kennedy chairs Cox Enterprises and served as its CEO from 1988 to 2008.

No. 4: Cargill-MacMillan — $45 Billion

The Cargill-MacMillan clan includes 14 billionaires, more than any other family in the world. Along with several other cousins, they own 88% of Cargill Inc., America’s largest private company. The $128 billion (revenues) agribusiness giant sells food, processes crops, trades commodities, sources ingredients and provides financial risk management. It all started with W.W. Cargill, the son of a Scottish sea captain, who founded the company as a small grain storage business in 1865 at the close of the American Civil War. He got rich as railroads expanded westward at the end of the century, turning the Great Plains into America’s bread basket. Cargill’s son-in-law, John MacMillan, took over the business in 1909. The final member of the family to serve as CEO, Whitney MacMillan, stepped down in 1995. Today only six members of the family sit on Cargill’s 17-person board, thanks to an agreement between family factions in the mid-1990s. The family leaves 80% of the company’s net income inside the company for reinvestment each year.

No. 3: Mars — $80 billion

Forrest Jr., Jacqueline and John own 100% of Mars, the largest candy company in the world with $33 billion in sales. The siblings, who sit on the board but have no daily role, inherited the company in 1999 when their father Forrest Sr. died. Their grandfather Frank began selling candy from his Tacoma, Washington kitchen in 1911. Their father joined the company in 1929, around the same time the company invented the malt-flavored nougat that became the basis of Milky Way and Snickers. The company later created M&Ms, over 400 million of which are produced in the U.S. each day. Mars also makes Uncle Ben’s rice and owns pet food brands Pedigree and Whiskas. Jacqueline is a trustee of the U.S. Equestrian Team and sits on the board of directors of the National Sporting Library and Fine Art Museum. Forrest is interested in historical preservation and is a trustee of the Colonial Williamsburg Foundation. John and his wife Adrienne are noted supporters of the Fred W. Smith National Library for the Study of George Washington at Mount Vernon.

No. 2: Koch — $86 Billion

A bitter split led brothers William and Frederick Koch to sell out of the Koch family business – started with refineries by their father, Fred Sr., in the 1930s — for a reported $700 million in 1983. That left the two other siblings, Charles and David, in charge of expanding their conglomerate, Koch Industries, now the nation’s second largest private company (behind Cargill) with more than $100 billion in sales. Feeling shortchanged, William and Frederick spent more than a decade suing for more, but today are worth a fraction of their more powerful siblings, who both rank among the nation’s top 10 richest individuals. Charles and David plan to be big spenders in the 2016 elections through their various conservative organizations. Charles told USA Today in April he and his 450 wealthy followers plan to spend $300 million on the elections over the next two years.

No. 1: Walton — $149 Billion

The Walton family has ironclad control over the world’s largest retailer: Together, six of the Waltons own nearly 54% of the shares. Rob Walton stepped down in June as chairman of the company, a position he held for 23 years. His son-in-law Greg Penner succeeded him. Though often embroiled in controversy — Mexican bribery scandals and criticisms over employee pay have grabbed headlines over the past year — Walmart’s sales haven’t suffered: it generated $486 billion in revenue in fiscal year 2015 . The company has come a long way since it was started by Sam Walton (d. 1992) and his brother James “Bud” (d. 1995) in a small Arkansas town in 1962. The fortune they left behind is now held by Sam’s three living children and daughter-in-law, and Bud’s two daughters.

Written by Kerry A. Dolan of Forbes

(Source: Forbes)

Facebook Close Sets Speed Record for $250 Billion Market Cap

David Paul Morris/Bloomberg
David Paul Morris/Bloomberg

It seems like just yesterday that Facebook Inc. went public. Now its market value has topped $250 billion.

The social network company’s 2.4 percent climb to a record close on Monday made it the first company in the Standard & Poor’s 500 Index to breach that market cap so quickly. The previous record holder was Google Inc., which took about eight years.

Facebook’s rapid ascent may indicate investor confidence that the company will continue to increase mobile-advertising sales on its application and others. To some degree, the gain also reflects froth in tech stocks; the Nasdaq Internet Index has almost doubled since Facebook went public.

Its shares trade at 87 times earnings, almost five times the average in the S&P 500. Companies in the Nasdaq Internet Index trade at a price-earnings ratio of 27.

“When you see stocks with these high multiples, it shows you the market’s comfort in the longer-term growth story,” said Paul Sweeney, an analyst at Bloomberg Intelligence. “Investors think Facebook is more valuable than the average Nasdaq stock.”

Troubled IPO

The company’s quick rise to $90.10 a share on Monday is even more remarkable because the stock lost more than half its value in the four months after its IPO in May 2012. Facebook had a market value of $104.2 billion at its IPO, so the company didn’t have to climb as far as some other companies did to reach $250 billion.

With a market value of $253 billion, Facebook is now the ninth-biggest company in the S&P 500 — bigger than Wal-Mart Stores Inc. and Procter & Gamble Co., which took decades to grow as valuable.

Facebook’s revenue from advertising — from which the company gets more than 90 percent of its sales — increased 46 percent to $3.32 billion in the first quarter from a year earlier. More than two-thirds of that came from mobile ad sales. Analysts estimate that sales rose 37 in the second quarter, according to data compiled by Bloomberg.

Longer-term, the company plans to serve ads on other applications and websites and to make money from its rapidly growing Instagram, WhatsApp and Messenger apps. Facebook also is betting on its $2 billion purchase last year of Oculus VR Inc., a virtual-reality headset maker, and efforts to expand Internet connections in developing countries.

Written by Michelle Davis of Bloomberg

(Source: Bloomberg)