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Thursday, March 21, 2002

By Joyce Gannon, Post-Gazette Staff Writer

There was a time when 42-year-old John Tippins assumed he'd be running his family's industrial business, Tippins Inc., well into his 70s.

	Stonewood Capital Management executives, from left, J. Kenneth Moritz, John Tippins and George Knapp oversee a portfolio of investments that ranges from profitable industrial firms to 16 technology start-ups. (Lake Fong/Post-Gazette)

An electrical engineer, like his father, George, who built Tippins Inc. into a $115 million steel equipment company, the son even earned a master's in business administration because he figured he'd need it.

For a time in the late '80s and '90s, John and his brother, William, the only other heir to the family business, owned a majority stake in the family enterprise, helping to run it after their father, now 76, retired. But when William wanted out in 1998, John agreed to sell Tippins Inc. and shift his focus into financing other promising companies and entrepreneurs.

In doing so, John Tippins hasn't really left the family business. He's now managing director of Stonewood Capital Management, a firm that invests and manages the Tippins' family fortune, which totals in the hundreds of millions.

From an unpretentious office suite in Three Gateway Center, Downtown, Stonewood oversees a portfolio of investments that ranges from profitable industrial firms to 16 technology start-ups. Stonewood also manages the Tippins Foundation, a charitable fund that doles out grants mostly for medical research and entrepreneurship. Stonewood officials declined to disclose how much the foundation manages.

The Stonewood executives, which include Tippins, George Knapp and J. Kenneth Moritz, are equally elusive about how much cash they have to invest, except to say Stonewood's assets are worth "in the nine figures ... before the decimal point."

That's no exaggeration, given the history of Tippins Inc. Back in 1980, George Tippins invested $19 million to help the managers of Allegheny Ludlum, a specialty steel business, purchase that company from its corporate owners. When Tippins cashed out six years later, he made $400 per share on stock originally priced at $10 per share.

While they won't talk specifics about their total capital, one thing Stonewood's partners are adamant about is that they're not running a venture fund that needs to be replenished.

"It's not really a fund. Stonewood is not sitting on a pile of money from other investors," said Knapp.

The bulk of what's invested is Tippins family money; Moritz and Knapp also invest directly from their own holdings.

Because it doesn't characterize itself as a traditional fund, Stonewood also doesn't feel pressured to find quick, lucrative exit strategies from its investments.

"We look at and focus on a company's efforts in long-term growth," said Moritz. "No one is thinking in the back of their minds, 'How are we going to sell it?' "

Knapp, Stonewood's president and a longtime consultant to the Tippins family, said the firm scouts for two distinct types of investments: privately held, profitable manufacturing or distribution businesses with sales of $50 million or less in which it can pair its investment with that of the management team; and early-stage ventures, into which it typically invests $100,000 to $1 million.

Manufacturers in which Stonewood has invested include Emglo Products, an air compressor business in Johnstown that it bought in 1997 and sold last year to Black & Decker Corp. for an undisclosed profit; NewBold Corp., a Virginia-based maker of cash registers, plastic identification cards, plastic hotel room keys and other goods; and Cavert Wire, a 90-year-old Uniontown business.

On the new venture side, Stonewood has put its money into mostly Pittsburgh-based start-ups including Plan4Demand Solutions, a computer consulting business run by former Mastech executive Lisa Kustra into which Stonewood invested $1 million.

It also put $1 million in ClubCom Inc., a private television network whose broadcasts mainly appear in health clubs.

Investments of $500,000 or less include Webmedx, which makes software for physicians' offices; Precision Therapeutics, a biomedical firm that analyzes cancer treatments; TimeSys, a Carnegie Mellon University spinoff that develops computer technology; and www.TeenFX.com, a Web site targeted to teen-age girls that was launched by a CMU student.

Stonewood's largest early-stage technology investment to date has been in AcceLight Networks Inc., which is developing an optical network designed to simplify telecommunications equipment. Stonewood had already pumped between $100,000 and $200,000 into AcceLight when it agreed last summer to put in another $2 million as part of a $50 million round of venture capital provided by, among others, prominent Silicon Valley firms Menlo Ventures and Venrock Associates.

"We're looking for entrepreneurs with passion, with vision," said Tippins, who oversees Stonewood's seed investments. "We want people with motivation and drive; we don't want to be in technology to win the technical race."

The decision to leave the business founded by his grandfather in 1923 to become a full-time investor "was an obvious transition for me," said Tippins. Though he once envisioned retiring from Tippins Inc., when his brother became disinterested in the company, Tippins acknowledged that: "Maybe the time was right. There is a time and place for each generation." William Tippins, 39, is an investor in Stonewood and handles some of the family's real estate holdings.

Moritz, 39, runs the buyout side of Stonewood's business. A native of McKeesport and son of retired Equitable Resources Inc. Chairman Donald Moritz, the younger Moritz earned a bachelor's in geology from the University of Pennsylvania and dual law and business degrees from CMU and the University of Pittsburgh.

He spent four years working at a large New York law firm before moving back to work for Pittsburgh law firm Kirkpatrick & Lockhart. In 1994, Moritz satisfied his own craving to be an entrepreneur when he bought West Penn Hat & Cap Corp., a hat manufacturing business located in a former PPG windshield factory in Creighton. Under his stewardship, West Penn Hat developed an Internet site where shoppers can custom-design their own hats, OYO GEAR.

Moritz sold the hat business last year and joined Stonewood in October.

Knapp, 54, is an attorney who came to Pittsburgh in 1972 to work for Kirkpatrick & Lockhart. He holds degrees from Colgate University and Harvard Law School, and while at Kirkpatrick worked on deals for Tippins Inc., including George Tippins' financing of the Allegheny Ludlum management buyout.

In 1996, he joined the family investment business full time.

Knapp considers the Tippins family's evolution from manufacturing and engineering to bootstrapping other people's businesses to be a natural step.

"It strikes a response in the Tippins family. [George's] sons inherited a bunch of that entrepreneurial spirit."