Are Entrepreneurs Too Busy Chasing the VC Dream And Missing Out On Raising HNI Money Through Family Offices?
Family offices have always been thought of as private wealth management advisories that are pertinent in the west. However, over the past few years, the concept has been picking up world over, including in India
In the financial lexicon of the startup ecosystem, terms such as venture capitalists, seed funding and equity funds are commonplace, but one rarely hears the words family office when talking about funding a startup. This is because for far too long, most entrepreneurs have been tailing the conventional and often elusive venture capital dream instead of exploring newer avenues such as family offices (FOs). Armed with decades of experience in wealth management, FOs are an untapped source of financial wisdom, business acumen and most important modes of funding.
Family offices have always been thought of as private wealth management advisories that are pertinent in the west. However, over the past few years, the concept has been picking up world over, including in India. And this is because FOs employ people from diverse backgrounds, right from investment and wealth management professionals to accounting and legal experts, FOs have a gamut of services under one roof. Some even have concierge services. It is this diversity of expertise that leads to the creation of vast networks that young entrepreneurs can benefit from while raising funds.
In addition to the above, here are some of the most distinct reasons why entrepreneurs should consider raising money through family offices.
Unlike VC firms, family offices do not have to deal with matters of fund life and the subsequent investment and disinvestment issues. They are also not fixated on returns within a fixed time frame. Family offices thus believe in the concept of wise wealth that is created keeping a long-term approach in mind. They do not approach wealth from a short-term or quick gains perspective and advise their HNI clients accordingly. Hence, entrepreneurs who garner funding through the family office route can be rest assured of patient investors who are willing to let the company and their investment grow.
Alignment of values
Not all entrepreneurial ventures are into tech and fast growth. There are scores of startups working to affect real change in rural communities and their growth trajectory might be different from others. Such companies may require more than just a quick infusion of funds. Family offices and their clients understand what an entrepreneurial cycle entails; hence, investment terms are always aligned to a company’s lifecycle. This is in stark contrast to VC funds that are usually governed by fund life cycles; HNI investors have more flexibility and are willing to truly invest in the vision of a company.
Financial and strategic partner
Family offices provide more than just opportunities for funding. In addition to helping entrepreneurs generate capital, FOs are in a position to provide steady support in terms of mentorship, networking and strategic introductions, and capital beyond just early-stage investment. They can do this because of their vast and deep connections with multiple generations of UHNI/HNI business families. Also, FO founders were once entrepreneurs themselves, hence, they can provide valuable insights and become sounding boards for young CEOs in need of a guiding hand. Startup founders often find themselves juggling many responsibilities and are too focused on getting a product off the ground. This can lead to neglect in areas such as governance structures and tricky financial compliance rules. Here is where the role of a family office can once again come to the fore. Family offices exist to help businesses create and implement future plans and deliver long-lasting value. Startups can take refuge in this and allow FOs a seat at the table so that they can offer tangible insights and strategic advice whenever needed.
Most entrepreneurs today are looking for more than just funding; they seek business guidance and mentors who can be sounding boards when it comes to making important decisions. And lastly, being a startup CEO in a competitive environment can be a stressful and lonely job, hence, more often than not, entrepreneurs seek people who can be their friend, philosopher and guide. Family Offices can embody all these roles and much more, and thus it is no wonder that they are emerging as key players in the startup ecosystem.