When starting a business, entrepreneurs have a list in mind of the boxes they’d like to check off. Know their business concept. Check. Develop a business plan. Check. Seek equity capital -- not such an easy check...
If you’re looking for help funding your business, the first option is usually venture capital, and that’s after exhausting the family-and-friends avenue.
One option for financing that’s often overlooked is the family office. Family offices operate as private companies that manage investments and trusts for a high-net worth family or group of families.
They’re typically very private and misunderstood, but if you unlock the secrets to how family offices invest in new ventures and the criteria they look for, it could be the key to funding your business.
Family offices are a particularly important source of capital for small-to-medium-sized businesses. According to the Family Office Club, there are currently more than 3,000 family offices in the U.S., and these offices often look at alternative investment opportunities -- which could be your startup.
Family offices, which generally have a minimum of $100 million in assets, could be worth looking into for entrepreneurs.
How do I find a family office?
While family offices can be elusive and highly selective, referrals, trusted networks or entrepreneurship conferences may provide entry. In my case, networking and referrals paved the way.
The company seeking funding must also align with the family office’s investment criteria and philosophy. Many have a predisposition to invest in companies directly or indirectly related to the core business on which their success is built.
How do I determine if a family office is a good fit for my business?
Ultimately, any new investor is betting on both the business plan and the founder/CEO. Conversely, the founder/CEO needs to find and identify a new investment partner who has a long-term view and the time and interest to help propel the business forward.
What else do you need to be aware of?
If you’re being introduced to a family office by a financial firm, there can be fees associated with the transaction.
All investors will want to understand the exit strategy of the investment – it’s important that is clearly articulated.
If a family office chooses to invest in an entrepreneur’s business, you may find that family offices:
- Provide incredible connections
- Are able to take advantage of a situation where markets may cease to function in a regular manner
- Are more patient than institutional investors or private equity
- Appreciate how much work has to go into starting a successful company
- Serve as mentors
When I started my company, Arrowsight, I sought out a family office to provide funding. The relationship has been far more successful than I could’ve imagined and I’ve learned a great deal.