A lot of people think all holding companies are Berkshire Hathaway. But believe it or not, we’re not all Warren Buffett.
There are actually four different types of HoldCos. And they’re each useful in different situations.
The easiest tell between each type of holding company we’ll discuss below is how alike their portfolio businesses are. The more similar, the more you can centralize services, resources, or activities – and generate efficiencies and cost savings.
The Traditional HoldCo
This business structure manages a portfolio of unrelated businesses with minimal integration. One common attribute is that the owner’s influence is typically only via board representation.
Here’s another example. Let's say you want to own a fireworks company, buy a coffee business, do some PE deals, and incubate companies. You would use a Type 1 structure (The Traditional HoldCo).
The "cost" of this model is that you give up the benefits of centralization – you likely have redundant accounting and HR teams, for example – and your interaction model with subsidiaries is limited to board seats and P&L statements.
However, this type is the most flexible and scalable. Berkshire Hathaway and Xavier Helgesen’s Enduring Ventures have this model.
What’s the ideal structure for a Berkshire Hathaway-style holding company? It varies by many factors: Ownership structure, exit goals, and funding paths.
In most cases, there is a master entity that is either a C-Corp or a passthrough entity like an LLC. Most folks involve lawyers, accountants, and tax planners as they set up their structure.
The Accumulator and the Platform
Types 2 and 3 are the "Accumulator" and "Platform" models. Unlike the “Roll-up,” these structures centralize fewer functions since their assets vary. The more alike the businesses you hold, the more it makes sense to centralize.
Where "Platforms" and "Accumulators" differ is the types of assets they hold. Accumulators stick to a category, like B2B software, and you can centralize sales or engineering. Platforms have multiple categories and group them.
One final point I find very interesting: These structures can "nest.”
By that, you can have a Berkshire-style pure HoldCo that owns equity in an Accumulator-style HoldCo. That's what I've done with Girdley Enterprises and Dura Software.
Let's say, for example, you're purchasing several doggie daycares. You would use the Type 4 business structure (Roll-up). You can centralize things like HR, brand, equipment, finance, and marketing since all assets need the same thing.
So, roll-ups often have big HQ staff to do these things.
Editor note: Learn how Willet + Cumro Innovations uses Rho to streamline AP and accounting for its multi-entity business.
Wrap-Up: Getting your holding company structure right
In the end, picking the right HoldCo structure matters a ton.
Getting it right will set you up for growth and resiliency.
And win versus other potential acquirers.
But do it wrong, and you can end up limiting your chances.
Michael Girdley is an entrepreneur, investor, author of the popular business newsletter GirdleyWorld, and a prominent voice on X. He co-founded the Geekdom Fund, an early-stage venture capital firm focusing on tech, where he is currently a managing director. Michael also sits on the boards of multiple companies, including Codeup, Grok Interactive, Prospectify, RealCo, and Alamo Fireworks. Learn more about Michael at https://girdley.com/.