Family Offices – the ideal VC partner & where to find them
A start-up looking for funding is immediately drawn to VC funds and firms – after all they are the experts in their field and do nothing else but invest in promising ventures that will hopefully grow to become the next multi-billion dollar unicorn. However, VC funds and PE firms primarily serve their investors and shareholders and need to generate profits – ideally the highest ROI in the shortest possible period of time. And sometimes a start-ups needs just a little longer to develop its full potential; time many funds don’t have. But family offices do.
Single family offices are investment vehicles that manage the assets of ultra wealthy individuals and invest on behalf of just one family. The result of successful multi-generational entrepreneurship, family office are created to preserve already existing wealth and are often purpose driven. Other than a purely profit orientated investment vehicle, private investors are looking at the bigger picture: is my investment making an impact? Is it sustainable? Will society benefit from my investment? And that’s what makes family office investors so interesting to up and coming founders and entrepreneurs.
Also, families and their investment offices have a longer investment horizon than funds or shareholder-owned firms, that is because third party pressures of investors or shareholders are removed and their invested capital is patient.
Since single family offices invest on behalf of only one family they are smaller in their set-up, therefore more agile and take decisions quicker than large funds, if immediate action is required. And although smaller in their set-up with few staff and an unpretentious office, big family offices have more assets under management and cash readily available than firms, who need to raise capital first before being able to commit.
This is an advantage for start-ups that are urgently looking for capital, and a competitive advantage for the family office that competes with funds and investment firms for the best deals. But that doesn’t mean that just any family will throw money at just any idea. Private investors need to be convinced, after all it is their own hard-earned money that they invest. When asked in retrospect why they invested in a certain venture they often answer that besides the profitability of a deal, their heart was in it and it was an emotional decision just as much as number-based rational one.
The underlying entrepreneurial factor of most family offices is yet another advantage. While many VC firms and funds nowadays offer support structures for start-ups and innovators, it is worth reading the T&C’s and check whether the help is really as unconditional as it might appear at first glance. Private equity and venture capital firms are usually run by investment professionals and fund managers, backed by analysts and researchers but they lack the entrepreneurial spirit and experience a family office might be able to offer.
An entrepreneurial family or industrial dynasty maintains vast professional networks including bankers, accountants, lawyers and consultants. To a founder who is raising capital, the investor’s managerial experience, existing supply chains, knowhow, databases and marketing insights, are as valuable as their capital.
Many might be flicking through the little black book – mentally at least – and wonder how many family office contacts they have and the result will probably be a sobering one. That is not surprising as family offices are naturally shy creatures. Identifying a single family office could lead to identifying the family behind it and could allow one to draw conclusions on the family’s wealth and net worth – information most ultra-wealthy rather keep to themselves.
The words ‘family office’ in the company name often lead to the conclusion that one is dealing with a multi-family office (MFO) rather than a single family office, who operate under plain names like ABC Holding without an internet presence or easy to find contact details.
So how does a start-up identify single family office investors; and how can they get in touch with them? Best to leave this cumbersome task to those with existing networks and experience. With the rise in numbers of family offices more and more events for these investors are being held around the world. Only few of them are worth their money, but those that are open doors to dozens and sometimes hundreds of qualified investors with appetite for deals.
A start-up does not only impress with figures and numbers, but the idea needs to be appealing to the investor. Conveying a message that sticks by merely sending an email is next to impossible. Hundreds of those emails land in the inboxes of family office investors, most of them remaining unread and making no impact. Any pitch to an investor should start with a handshake, a smile and a compelling story that triggers the interest of the investor.
But to shake an investor’s hand, one has to be where the investor is. A fund raiser could find out where the principal of a family office plays golf or likes to have a cup of coffee, show up at the office unannounced or hang out in front of the family home – all possibilities to cause a security incident. A safer and more promising alternative is the attendance at an event dedicated to single family office investors.
Start-ups with sound finances and a marketing budget can make use of sponsorship opportunities, offering the chance to present themselves and their ideas, technology or vision, addressing an audience of motivated and interested participants. Those in the early stages with tight or no budgets at all can attend as delegates – most events offer delegate passes.
Attending those events is hard work and requires proper preparation. Professional family office event organizers or dedicated agencies can offer support to fund raisers who should tailor their message, taking into account who they are targeting, the region they are visiting (maybe a US tech start up wants to raise funds in the Middle East), the set up and format of the event, the agenda topics and so on.
Working with family office investors is a viable alternative to VC funds as they often act as strategic investors, supporting the founder with more than just capital. Identifying family offices in the first place and finding the right investor can be a cumbersome task but the participation in a high quality investors summit specialized in connecting family offices with investment opportunities is the easiest and most economic way to engage to an audience that would otherwise be out of reach. Read here how to assess the quality of family office conferences.