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Value investing · · 8 min read

Allen & Company's third generation: Herb III

September 2002.

Herbert Allen Jr., 62, had run the firm for 36 years. He handed the keys to his son, Herbert Allen III, then 34.

Most large investment firms never pass smoothly through three generations. Lehman Brothers broke up. Morgan Stanley merged and split. Goldman Sachs went public and became a corporate machine.

But Allen & Co is still at 711 Fifth Avenue, still with no website, still with no press releases, still 175 people on three floors.

What did change: from a merchant bank specialising in media and entertainment, under Herb III, Allen & Co quietly became one of the most powerful technology investment banks in the world.

They underwrote Google's IPO in 2004. Twitter in 2013. Facebook in 2012. They advised Facebook on buying WhatsApp for $19 billion. LinkedIn on selling to Microsoft for $26 billion. Activision Blizzard on selling to Microsoft for $69 billion, the largest video game deal in history.

Herbert Allen III: a different kind of heir

Unlike his father, Herb III went to university: Yale, History, class of 1989. Unlike both his great-grandfather and grandfather, Herb III worked elsewhere before joining the family firm: two years at T. Rowe Price as an equity analyst, then at Botts & Company in London.

Herb III was the first Allen with outside experience before joining. He joined Allen & Co in the early 1990s. Became chairman in January 1993, at 25. President and CEO in September 2002, at 34.

His father remained honorary chairman until retiring fully. No break in the tradition.

The quiet 2002 restructuring

When Herb III took over he announced no new strategy. There was no company-wide meeting. But there was an important structural change: they split the firm in two.

The "old company" (Allen Holding Inc.) remained the traditional investment vehicle, holding Coca-Cola stock and other long-term positions. Estimated assets around $1 billion in 2004. The "new company" (Allen & Company LLC) took the modern investment banking role: M&A and underwriting.

A very Allen move: change the structure, keep the philosophy.

The shift to technology, without leaving Hollywood

The real story under Herb III is how Allen & Co moved from Hollywood to Silicon Valley without ever leaving Hollywood.

Hollywood in 2002 was dying slowly. The internet was eating music. DVDs had peaked and begun to decline. YouTube was three years away. Netflix was still a DVD-by-mail service. Herb III saw this. The question: how do you move into technology without betraying a Hollywood network built over 30 years?

Answer one: Sun Valley as the bridge. In 1999 his father had invited Larry Ellison of Oracle and Steve Case of AOL. In 2003 Herb III invited Larry Page and Sergey Brin for the first time. By 2004 Eric Schmidt, along with Page and Brin, were regulars. That same year Allen & Co became one of ten underwriters of Google's IPO at $85 a share.

Why would a 175-person boutique stand alongside Morgan Stanley and Credit Suisse on Google's IPO cover? Nancy Peretsman, an Allen & Co managing director, knew Eric Schmidt from Princeton. One relationship. One deal. After that the network expanded exponentially.

Google stock at $85 in 2004 became more than $1,400 by 2020 (split-adjusted). A deep relationship beats a deep deck. Allen may not have 200 bankers to pitch, but they have the people a CEO phones personally.

Answer two: bet on people. The "back great operators" model of Charlie and Rainwater was applied directly to Silicon Valley.

Note the word "sole" on Activision. For decades Allen & Co typically co-advised with larger banks. On several of the biggest recent deals they were the only adviser. Wall Street is realising what Hollywood realised 40 years ago: if the CEO trusts Allen, Allen can replace Goldman.

Answer three: Sun Valley evolved from Hollywood to AI. The Sun Valley guest list across the decades reads like a history of American power: Murdoch, Eisner, Buffett (1980s), then Gates and Andy Grove (1990s), then Brin, Page, Schmidt, Bezos (2000s), then Zuckerberg, Cook, Dorsey, Musk (2010s), then Sam Altman, Dario Amodei, Alexandr Wang (2020s).

Sun Valley went from "summer camp for media moguls" to "summer camp for the people deciding how AI will shape the world". And Herb III, 57 in 2025, is still the host.

The deals that define the Herb III era

IPO underwriting: Google (2004, $1.67bn), LinkedIn (2011, $352m), Facebook (2012, $16bn), Twitter (2013, $1.82bn), Snap (2017, $3.4bn)

Sell-side M&A: Time Warner Cable to Charter (2015, $78.7bn), Time Warner to AT&T (2018, $108bn), LinkedIn to Microsoft (2016, $26.2bn), Yahoo to Verizon (2016, $4.8bn), 21st Century Fox to Disney (2019, $71.3bn), Activision Blizzard to Microsoft (2023, $68.7bn), Paramount to Skydance (2025, ~$8bn)

Buy-side M&A: Facebook buying WhatsApp (2014, $19bn), Walmart buying Jet.com (2016, $3.3bn)

Total deal value Allen & Co participated in, 2002–2025: more than $700 billion. With 175 people.

What changed, and what did not

After more than twenty years under Herb III:

Changed: the industry focus (from media to media plus tech plus AI). The role in deals (from habitual co-adviser to sole adviser). Average deal size (from $200m–$1bn to $20–100bn).

Unchanged, and this matters most:

The core is unchanged: invest the balance sheet first, advise second; permanent capital at the centre; relationships beat research; skin in the game for every senior partner.

Lessons for the next generation of value investors

1. Evolve through people, not strategy. Allen & Co had no "2002–2007 five-year strategic plan". They had Herb III, someone personally prepared to understand technology, who had lived abroad and watched his father for twenty years. When the time came he did not need a plan. He only needed to do the right thing at each moment.

2. One relationship per generation is all you need. Allen & Co got into Google's IPO because one MD knew Eric Schmidt from Princeton. One relationship. One deal. Then the network expanded exponentially. You do not need a network of a thousand. You need five to ten genuinely deep relationships with people on the way up.

3. Protect the DNA, innovate only at the interface. Allen & Co changed almost everything at the interface: focus industry, deal size. But the core did not move: balance sheet first, no website, no research, skin in the game. As you grow, there will be pressure to change. Know exactly what your unchanging core is. The QuietVC tagline, silent discipline, compound value, is DNA. Every evolution should protect it.

4. Never change how you decide. Charlie decided in conversations. Herb Jr. decided in conversations. Herb III decides in conversations. Never an investment committee. Never a mandatory memo. However large you get, keep decision authority with a few people who have real skin in the game. This is how you avoid the most dangerous collective psychological mistakes in investing.

5. Longevity comes from consistency, not prominence. In a hundred years Allen & Co was never the largest, loudest or most newsworthy firm on Wall Street. It has always been among the most profitable per employee, the most discreet, and the most trusted by the CEOs who matter. That is what carried it through every crisis. Consistency compounds. Prominence is noise.

A closing word

In a 2008 talk at Williams College, Herb Jr. said this about his son:

"I don't know. I think he does well. So I'm satisfied. If he stopped tomorrow and wasn't in the business tomorrow, it wouldn't matter to me."

The Allen tradition is not that Herb III must continue the firm. The Allen tradition is that Herb III must do what he believes in, have real skin in the game, and eat according to his own judgement.

That is the orthodox capitalism Herb Jr. defended. Not "the family firm must last forever", but "each generation must have the right to decide, a real interest, and real responsibility for those choices".

When you stand at 711 Fifth Avenue in 2026 and look up, still no sign, still no website, still nothing to see, you realise that one of the most powerful firms in America has been there for a hundred years doing exactly what Charlie Allen did in 1922.

Compound quietly. Hold for a long time. Stay around people with real risk on the line.

They never wrote it down. They just lived it.

See also: Allen & Company, how to make money for a hundred years and Charlie Allen, the merchant bank that taught Rainwater 85% of what he knew.

Silent discipline. Compound value.

Hoan Do · Founder, QuietVC