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Old wealth eyes New Age
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February 17, 2000: 7:33 a.m. ET
Rothschild lines up with U.S. venture firm to tap runaway riches in technology
By Staff Writer Jamey Keaten
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NEW YORK (CNNfn) - Old World money, meet Silicon Valley venture capital.
Lord Jacob Rothschild, whose holdings are most notably in wine, nurseries and finance, last week announced he's devoting a sliver of what is reportedly a 270-million pound ($430 million) fortune to a venture capital fund focusing on Digital Age companies with an international slant.
To relatively little fanfare, this paragon of inherited wealth-turned-savvy businessman inked a $20 million investment in Blumberg Capital Ventures I L.P., a $100 million venture fund based in San Francisco. The new fund is the brainchild of newcomer David Blumberg, whose biggest success so far was to drum up financing for CheckPoint Software Technologies Inc. (CHKP: Research, Estimates), a provider of firewall security systems.
Europe's elites have traditionally been hush-hush about their investment strategies. The Rothschild investment, venture capital experts say, offers a rare glimpse at what has been a quiet but widespread phenomenon -- that the promise of riches in technology is drawing Old Money into the new economy.
The appeal is... more money
So at long last, what's luring the highbrow Ascot crowd into the technological realm dominated by Silicon Valley's at-ease, jeans-and-T-shirt culture?
"There is a huge change going on, and they are learning. Once they learn that there is money to be made, they'll start moving in," Lord Rothschild said during a recent telephone interview. "They've been a bit slow. It's more difficult for these 'old economy' types to embrace the new economy."
Lord Rothschild, however, is no newcomer to technology investing. While his investment in the Blumberg fund is his first direct play in a U.S. venture capital fund, he said he has already invested in some 20 Internet-related firms.
"If you look at the old families that remain relevant today ... you have to give the Rothschilds credit for being something of a factor," he said, pointing to his role as a founding investor in Getty Images (GETY: Research, Estimates), an online art vendor that operates art.com web site, as one example.
Rothschild's Waddesdon Manor outside London
Lord Rothschild is not alone among Europe's traditional wealthy in heeding the lure of technology.
A venture fund backed by Bernard Arnault, the French magnate behind luxury goods maker Louis Vuitton Moet Hennessey, last year joined in raising $195 million for the online trading service Datek Online. Even Britain's Queen Elizabeth II has reportedly invested about $166,000 of her 400-million pound fortune into an online mapping service.
"We've seen an increasing trend of investing in venture capital from Europe," said Allan Ferguson, a managing director at venture fund 3i. Europe's wealthy tend to form their own funds, line up with established venture capital firms, or seek a "gatekeeper" firm that can help wisely distribute their investments.
Venture capital is booming. According to a survey released this week by PriceWaterhouseCoopers, venture capital funds drew $35 billion last year, up from $15 billion in 1998 and $11.5 billion in 1997. And the accounting firm says current levels of investment are likely to continue.
The demand for a piece of the venture capital pie has gotten so high, say industry experts, that funds can be picky about who they let in and can even close the door to some of the world's most recognized names. Europe's most elite investors have traditionally played close to the vest about their investment strategies -- but now that reticence may be melting as competition stiffens.
Kirk Walden of PriceWaterhouseCoopers said it's not so easy for conservative, Old Money investors to plow their vast fortunes into high-risk venture capital in technology -- a sector that now makes up nearly 90 percent of the total venture capital market. They've been more likely to put their money into later-stage, more-established companies.
"You're talking about a real stretch for someone who's used to investing in later-stage, regular private equity," Walden said. "It's hard for the Old Money investors to go to a company that is three months old, run by 24-year-olds and to give it $50 million. Their entire economic structure was built on a different kind of investing. In venture capital, you have to be prepared to lose it all."
It may be the ultimate vote of confidence for high-flying technology stocks, as some of Europe's most renowned families are quietly getting in on the ground floor in the expectation a new round of tech investing is dawning. After largely missing out on the explosion in Internet stocks over the past few years, these European tycoons are insistent they won't miss the boat a second time.
Better late than never?
But other tycoons whose riches were born in more traditional investments haven't been as keen about the technology boom. Warren Buffett, the world's second-richest man, is a self-avowed "techno-phobe" -- fearful about committing his money to companies he can't easily understand, such as the Internet sector. So is the Oracle of Omaha unwise to miss out on the action?
"We don't have any hesitancy - but you have to be aware that you may be investing at the end of the cycle," said Lord Rothschild.
What originally tweaked Lord Rothschild's interest were comments by Blumberg at an industry conference, when he insisted that navigating the world's regulatory differences was important for e-commerce -- countering an argument presented earlier by Amazon.com CEO Jeff Bezos that brand name is the be-all, end-all of an Internet enterprise.
Standing in for Lord Rothschild at the conference was one of his assistants, Ranjeet Bhatiya, who invited Blumberg to meet Lord Rothschild at his 5,500-acre Waddesdon estate. The estate -- home to his winery and nursery, and a tourist hub for its majestic gardens and architecture -- is located a short distance from Oxford and just northwest of London.
At their tete-a-tete last June at the estate, where Blumberg said he was welcomed by a half-dozen ladies-in-waiting, Lord Rothschild said he wanted to correct what he felt were two key oversights in his family's investing history -- of the relative few 'mistakes' that were made.
The Rothschilds missed out on the American boom that began in the 20th century, and the family is in jeopardy of missing out on the huge paper-profit gains enjoyed by thousands -- if not millions -- of U.S. investors who have ridden the Internet, telecommunications and technology wave, Blumberg recalled Lord Rothschild as saying.
"[Lord Rothschild] said he was determined to right both of those errors," Blumberg said, adding the venture fund's focus will be mainly in trans-Atlantic investing. "He sees us as a pivot point in Silicon Valley."
The family made most of its enormous wealth in the banking, industrial and transportation sectors. Lord Rothschild's forebears are credited with a critical role in the development of international financial institutions and markets, and the bond market in particular.
Lord Rothschild himself broke off from the NM Rothschild banking empire in the 1980s, making a mark for himself as a savvy businessman in his own right and developing three funds said to be home to the bulk of his wealth now: RIT Capital Partners, Value Realisation Trust and St. James's Place Capital. 
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Blumberg Capital
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