It’s payback for the Bank of Mum and Dad
As Jeff Bezos’s parents are named the most successful investors, Harry de Quetteville looks at family loans that paid dividends
In 1995, a Cuban immigrant to America called Miguel and his wife Jackie were wondering how to invest their hardearned savings. They were sitting on almost a quarter of a million dollars, then worth about £150,000 (about £285,000 today) – and toying with the idea of helping out their 31-year-old son, Jeff.
It’s something that every parent has considered. In their 20s and 30s, our children are at their most imaginative, their boldest – their most entrepreneurial. Yet they are also thirstiest for cash: without steady jobs, solid salaries and secure credit histories, they find access to finance is hard. No wonder so many turn to the Bank of Mum and Dad.
The obvious way to help is with a first home. Getting on to the property ladder is something hard-wired into the owner-occupier generations of middle age and beyond. With prices soaring, we want our children or grandchildren to get a foot on the lowest rungs of the ladder, too, confident that they – like us – will climb. Indeed, recent research revealed that an astonishing two thirds of home-buyers under 35 receive family help, totalling almost £7billion a year, making the Bank of Mum and Dad one of Britain’s biggest mortgage lenders.
But that’s not what Miguel and Jackie did. Instead, they handed Jeff $245,573 to put into his fledgling business selling books online. He did not sugarcoat the dangers, telling them that, on balance, he thought his company would go bankrupt. “I want you to know how risky this is,” he said, “because I want to come home at dinner for Thanksgiving and I don’t want you to be mad at me.”
His company didn’t go broke. Miguel and Jackie Bezos’s son decided to call his start-up Amazon. Today, it is the second most valuable business in the world, worth $874billion (£672billion). If they had sold their entire stake on the day Amazon stock was at its lowest ever price, his parents would still have made $100million. But, assuming they have held on to a large chunk of their 3.4per cent stake in the internet retailing giant, they will currently be worth about $30billion (£23billion).
This represents a return of more than 12million per cent – which, it was calculated this week, almost certainly makes it the most profitable investment, by anyone, “of all time”. In the same period, London property prices have increased by about 500 per cent. In the capital, in 1995, £150,000 would have bought you a lovely semi-detached house. Today that house is likely to be worth a million or more. It’s a lovely return and probably a lovely place to live.
But it’s not quite $30billion. It won’t help you join the select, boomerang bonanza club of parental investors whose children have struck gold. For the Bezoses are not the only ones. Dean Woodman lent his son Nick $200,000 back in 2002 to help launch a fledgling adventure camera company. In 2014, at the end of Go Pro’s first day of trading, his 6.7per cent stake was worth $225million.
And these are not even the most famous parents to have piled cash into their offspring’s early ventures, or the most dramatic results. Without his father Fred, who lent him $1million, Donald Trump would not have been able to make his first property deal. And we all know where that has led. Some of the world’s most famous brands would not exist without parental investment. In the early Sixties, Sam Walton borrowed $20,000 from his father-in-law to start a store that became Walmart.
At the same time, Phil Knight, now worth more than $25billion (£19billion), borrowed money from his father to pay for samples of running shoes imported from Japan. In his memoir, Shoe Dog, Knight reveals how his parents repeatedly supported him at the toughest times in his career. Nike wouldn’t exist without that heart-tugging story – and now Netflix is making a film about it.
Joy Mangano burned through her own tiny savings when she was trying to develop the Miracle Mop, so turned to her family, and used her father’s garage as her first factory. Now she’s worth tens of millions and has had a movie, Joy, starring Jennifer Lawrence and Robert De Niro, inspired by her life.
Some of Britain’s most celebrated entrepreneurs have also been seen on their way by their parents. Tom Singh famously started fashion chain New Look with a £5,000 loan; Richard Branson borrowed money from his aunt when Virgin was on its uppers in the early Seventies
– and his mother even posted bail when he was arrested for a youthful customs scam.
Branson told me recently that entrepreneurialism “was a dirty word” when he was starting out. Funding was strictly controlled through traditional, established banks (he recounted one memorable story of his banker waiting for him at Heathrow, when Virgin had just one plane, to declare the embryonic airline bankrupt).
Now, so-called venture capital investment in “start-up” companies is plentiful. But it is still hard to prove to such grizzled finance veterans that your idea – and you – are worth investing in. Even Google founders Larry Page and Sergey Brin had to rely on family and friends at the outset.
Among them was David Cheriton, also at Stanford University, who invested $100,000 in Google 20 years ago and is now worth an estimated $6billion – making him the richest academic in the world.
As Bezos made clear, investing in start-ups is a hugely risky proposition, where the traditional advice “don’t invest what you can’t afford to lose”, is more pertinent than ever.
It’s one thing busting up with your financial adviser over a bad investment, quite another your son or daughter. Yet, according to start-up founders turned investors like Brent Hoberman, entrepreneurialism is no longer a dirty word. Universities even run courses on it. And as artificial intelligence looks set to automate millions of jobs in the next few years, experts say it is increasingly risky not to encourage the business resilience and creativity that Branson found was looked down upon 40 years ago. As Stefan Allesch-Taylor, who in 2016 was appointed the first professor of the practice of entrepreneurship at Kings College London, told me: “We live in a new age now, a world where the mission statement for the next generation will not be to find a job, it will be to create a job.”
Even if a little family cash goes down the drain, then, the investment that parents make in their children’s entrepreneurial instinct – even if it is just a few quid for a crackpot teenage idea – may be the best they ever make.
And if it doesn’t go and disappear into thin air, well, there’s always the possibility, the slim possibility, that your child is the next 12million per center.