Why Family Offices could be your Company's Best Strategic Partner and How to reach them

Many private companies understand the importance of one of the most liquid, and largest pools of wealth in the world – family offices. Their assets are expected to surpass the entire hedge fund industry in a few years while their total worth is already reaching the $10 trillion levels.

The incredible growth of this segment continues at meteoric pace as older families who tend to be sophisticated investors and great family business managers, plan smartly their tax strategies as well as the transfer of those gains to the next generation. If we are also counting the new wealth that is being created on a daily basis by new entrepreneurs who sold their companies, we are talking serious capital. This capital can be strategic for your company, and it thinks and operates different than the funds.?

VCs vs Families - Different Mindsets

Family offices are not tied to many rules and deadlines other investors are. For instance, VCs are ROI driven and need to deliver strong results to keep their investors happy. In the first years of the funds, they must allocate their capital fast, while in the later years they must liquidate some investments, which in many cases means pushing companies for a premature exit.

Families on the other hand are what we call “patient capital”. Unless there is an emergency or an unexpected event demanding liquidity, they are not under any pressure to sell and will most likely give the company as much time as it needs to operate more freely.

They may also be easier going when it comes to a second round raise or a bridge investment a company might desperately need fast. If an opportunity comes along and a company needs a quick flow of capital, VCs will require them to go through the entire DD process and all the filings necessary, which might take valuable time the company doesn’t have.

If the company has good relationships with its private investors however, it could be as easy as a phone call to the family that may provide them with that quick investment they desperately need.

?Families Spread the Word and Open Doors

Families share a good investment story they are excited about with their friends. Funds don’t really do that.

Imagine you have made a direct investment in a company you love, what will happen in the weekend when you meet your friends for a BBQ? You will share this with your friends who are more likely to take your advice as a friend, knowing you are completely neutral. And the more they share, the more that company will be penetrating a closed circle of family offices.

Families in many cases fall in love with a company and its leadership and might end up being way more than just a source of capital. Just last year a family attended our Florida event, met a presenting company and a few months later invested in them, they helped the company close one of their largest deals ever by introducing them to a major client the family was acquainted with. ?

Some families care about issues that many other investors may not. Investments with positive impact on our world or society, could lead to an investment even if the ROI might be lower than another alternative.

I met an investor who has chosen to support a public company after he learned that every 10th employee they hire is handicapped. Of course, the investor liked the company and believed in it, but the company's employment practice has just won him over.

Significant Ticket Sizes

The ticket size of the families is also growing. Research shows a growing shift towards larger deal sizes, with 31% preferring deals between $1 million to $2.5 million, and a growing interest in deals over $5 million. (Global Family Office Survey Insights 2023)

?Having said all this, relationship with family offices - just like with your spouses - must be maintained well. Those who win big are those who learn how to be patient when needed while a family is doing their DD on them and that know how to be transparent with their investors throughout the investment's life. How to maintain these relationships? In my next article.