Using IQ data from Danish military draft sessions, we document three results: First, employees in family firms have, on average, lower IQs than employees in nonfamily firms. This gap is higher for CEOs and for employees in high-skill job occupations. Second, the IQ gap is correlated with other well-established measures of talent. Third, a firm's average employee IQ is positively correlated with the quality of its management practices, which is significantly lower in family firms. We also document that family members at all levels have higher IQs than non-family members, but family leaders tend to hire employees with lower IQ relatively to non-family leaders. Our findings are consistent with the fact that the talent gap is rooted in family firms’ lower ability to identify and provide incentives for talented individuals.