Do Family Offices Invest in Startups?
When you’re looking for funding for a startup, you may be overlooking one increasingly viable option—family offices. Many family offices, which weren’t traditionally thought of as startup investors, are now actively seeking out these opportunities.
Family offices can invest on their own, or connect with others through a family office database to make investments.
According to Forbes and other media outlets, there is a rapid rise in family office investments as a venture capital alternative.
If you’re heading up a startup and looking for funding, the following are some things to know about family offices.
What Is a Family Office?
A family office is a wealth management company that invests on behalf of one wealthy individual or a group of wealthy people. There has been an uptick in the number of family offices in recent years because of wealth stemming from the tech sector.
A single-family office, as the name implies, manages wealth for one person or one family. There are also multi-family offices that manage multiple families. In these multi-family offices, a group of families will bring together their investible assets for a formalized investment approach.
The family office actually employees not only investment professionals but accountants and lawyers in many instances.
A family office in the United States usually has at least $100 million in assets.
In the past, family offices didn’t directly invest in individual startups, and instead, they would be partners in venture capital or private funds. Now, there is more interest on the part of family offices into startups, and especially tech startups.
How Does a Family Office Compare to Venture Capital?
Two big differences in having venture capital investors and family office investors are first that family offices don’t have to exit at a certain time, or at least they don’t push as heavily for that. With venture capital investors, when funds get near their maturity date there is pressure to liquidate. Family offices also don’t face outside capital raise demands.
A family office might want an exit in a year or perhaps never. Their exit decisions are based on different factors than VC. Their objectives center around preserving and growing wealth across generations, and so they are looking at the value they’re getting from an investment.
Family offices want to be partners that work with startups strategically rather than just being a financial partner.
What Types of Organizations Do Family Offices Want to Invest In?
A family office cares a lot about relationships and networks when making an investment decision. They will consider first-time startup creators, but they want to see a compelling reason as to why they should invest and what the path to profitability is.
If you’re a new entrepreneur heading up a company for the first time, you want to think about showing how you can bring family office investors long-term value.
Additionally, bringing a family office on as an investor is going to be mean they’re going to care more about factors like vision and transparency.
The majority of family offices are going to want to have a seat on your board if they invest, and that can actually be a valuable strategic resource for your company. You can receive advice and other benefits that will help you grow.
Specific benefits of family office investors include their broad pool of connections, and the greater level of patience they’re likely to display as compared to private equity. Family offices are going to have more of an understanding and appreciation of what’s gone into building your business, and you can build mentor relationships.
How to Appeal to Family Office Investors
When you’re reaching out to family offices, there are specific things to keep in mind.
First, you want to have a well-defined purpose that goes beyond just profitability. You want to show how you’re unique in your industry, and you want to be able to clearly differentiate yourself. You should also be able to say what you aren’t, just as much as what you are.
You want to show that you’re genuinely interested in investors’ experience in your industry, or perhaps their interest in your industry. You want to be able to show a family office investor that you are looking to them for more than money. You want them to add value to your business, and that’s likely to be appealing.
Your goal should be showing that you have a strong management team and a viable, strategic vision for the future and that you will be a good partner for a family office.
