Philosophy: Believes that an entrepreneur's commitment to the company is gauged by how much he or she invests in it. Doesn't believe in mutual funds; invests primarily in his own company, then in other entrepreneurs, and then in customers and suppliers
Investment adviser: Follows his own muse
* * *
Jeanne Bayless
The venture player
President: AnswerSoft Inc.
Age: 36; single
Philosophy: Takes risks outside her business by investing with venture-capital friends in what she knows, such as young technology companies, some of which have since gone public. Diversifies with a range ofgrowth mutual funds, with the emphasis on technology
Investment advisers: Other venture capitalists; a fellow CEO
* * *
Pamela Barefoot
The survivalist
President: Blue Crab Bay Co.
Age: 44; married, with no children
Philosophy: Focuses on the business to ensure that its recent growth puts it on a more solid footing long-term. Has fully mortgaged her house to finance the business
Investment adviser: None
AN ENTREPRENEUR'S INVESTMENT CHECKLIST
Professional financial advisers (and business owners themselves) point to five key ways in which outside investments must meet the special needs of entrepreneurs:
1. They must not take up much time. Michael Troy explains: "I've chosen not to devote my time to figuring out how to maximize returns on my portfolio. I don't have the bandwidth to focus on the technical stuff and the fundamentals for other investments. I need to devote all my energy to seeing that the business succeeds."
2. They have to reflect the current stage of the business. The level of risk that may be appropriate for the head of a company that's reliably profitable is far different from what can be borne by the owner of a brand new start-up.
3. They must work toward the investment objectives of the entrepreneur. Traditional investment theory, this. The objective might be saving for college, a new house, retirement, or even a sum sufficient to start another business if things go awry.
4. They must deal with the entrepreneur's natural appetite for risk taking. They can balance that tendency or go with it, but they can't ignore it.
5. They should tap the opportunities not available to the typical investor. Those include tax breaks and services designed for the self-employed, such as Keogh plans, key-man insurance, split-dollar insurance funding, and special or discounted personal banking services that may be provided by your commercial banker.
According to Amy Braden, managing director of Chase Manhattan Private Bank in New York City, private banks are striving to come up with services for entrepreneurs' personal and business lives. "The service an entrepreneur needs is not what one would think of as traditional private banking in terms of management of liquid funds," she says. "Small-company owners should look at getting the personal banking services they need from the bank where they do their business banking."
The potential payoff is obvious: a banker who knows that someday you'll be looking for somewhere to deposit the money you get when you sell the business or begin to enjoy a large cash flow will be more likely to offer lower interest rates or to make an unsecured loan than one who sees that loan as the only source of income.
Oh, and one last thing: it doesn't hurt if the outside investments have some chance of earning a respectable financial return. Yet that may not be the most important feature to keep in mind. It may be enough for investments to not lose money.
THE PORTFOLIOS
Here's how the four entrepreneurs have invested their assets both inside and outside their businesses.
Michael Troy
Total assets
In the business 80%
Outside the business 20%
Investments outside the business: $250,000 - $500,000
Cash and money-market funds 10%
Equity in home 35%
Individual stocks* 15%
No-load mutual funds** 40%
*Holdings include Comcast, C-Cube, Sprint, and Antec.
**Holdings include GTGlobal Growth, 20th Century Select and Vista, Oppenheimer Main Street, and Fidelity Advisor Series.
Maynard Howe
Total assets
In the business 70%
Outside the business 30%
Investments outside the business: More than $1,000,000
Cash and money-market funds 10%
Equity in homes and real estate 45%
Individual stocks** 30%
Venture capital* 15%
*Holdings include Metrix (a supplier) and Scripps Center International.
**Holdings include IBM, 3M, and Fluor Daniel.
Jeanne Bayless
Total assets
In the business 50%
Outside the business 50%
Investments outside the business: $500,000 - $1,000,000
Cash and money-market funds 10%
Equity in home 5%
Individual stocks** 30%
No-load mutual funds* 30%
Venture capital 25%
*Holdings include Fidelity Select Healthcare, Telecommunications and Developing Telecommunications; Fidelity Magellan; USAA Growth; and USAA Income.
**Holdings include Quarterdeck, Proteon, and Cyrix.
Pamela Barefoot
Total assets
In the business 90%
Outside the business 10%
Investments outside the business: Less than $20,000
Cash and money-market funds 10%
Equity in home 90%
