How to Attract a Family Office to Fund Your Business
Family offices are spoken about with a sort of reverence around the investment world. They seem exclusive, elusive even, as they quietly swoop in and fund deals in the name of prolonging family wealth.
These ultra-high-net worth families enjoy a life and wealth most of us can only dream of. We often thought family offices only transacted deals in the lofty upper millions, but we are now finding family offices are taking notice of online businesses’ growth.
They see opportunity in our industry, while plenty of opportunities can be gained from aligning with their newest investment interests. We’ll explore their taking notice of the online space and walk you through insider knowledge on how to gain their trust and investments.
Ready to know how you can gain some of the most valuable, competitive investments in your online business? Read on.
What Are Family Offices?
A family office is a real-life (albeit formalized) example of the phrase “Keep it in the family.”
According to Investopedia, “Family offices are private wealth management advisory firms that serve ultra-high-net-worth (UHNW) investors. They are different from traditional wealth management shops in that they offer a total outsourced solution to managing the financial and investment side of an affluent individual or family.”
These investment advisors help with more than just the family’s assets. A family office services clients with tax planning help, travel arrangements, or philanthropy.
While a family office is there to guide wealthy families on financial matters, for the personal side of financial planning, family members may use family governance, a structure for how the family is organized, communicates, and approaches business investments. This allows them to take a professional, logical approach to difficult subjects like succession planning and overall wealth planning.
UHNW families choose family offices to manage their own funds because it saves them the money required to pay outside advisory services and gives them more power over their investments.
Understanding Multi-Family Offices and Single-Family Offices
There are key differentiators in this elite investor class: the single or multi-family office structure.
A single-family office (SFO) serves just one family, as the name implies. Typically, a billionaire would be the only high-net-worth individual to set one up, because it’s projected you’d need at least $100 million to start your own.
To put it in perspective, legendary investor John Paulson closed his hedge fund, John Paulson & Co., to create the world’s largest single-family office. According to Forbes, the SFO “has 100 employees and will now only manage Paulson’s personal wealth, estimated by Forbes at $4.2 billion.”
Often, you’ll see multi-family offices (MFOs) where several families pool capital to amass a greater pool of capital and go after more powerful investments. When multi-family offices pool their capital, they can strike “club deals” when buying businesses or making strategic investments because they can be a competitive buyer and make agile investments in ways other large firms cannot.
To put into perspective how much money we are talking about in the family office world, this year, the 11th Global Family Office Investment Summit was held in Monaco and billed as a $4.5 trillion meeting of wealth.
Tremendous money and power are held throughout family offices. You may be wondering why we’re talking about family offices if these investors are playing in the upper echelon of investments. Family offices are looking for creative, worthwhile investments and are willing to think outside the typical investment box. Now, we are finding that family offices are making waves in the online business space.
Why Family Offices Are Investing in Online Businesses
Most family offices will invest in things like real estate, gold, or a family business. But with the flexibility and power of a family office behind them alongside high-risk tolerance, these investors are willing to expand beyond the norm and are looking at the ever-growing online world.
One of the most transformational drivers of FO interest in online businesses is pandemic proofing. The pandemic is making a lasting impact on consumer preferences, and it’s proven ecommerce is not just the means of survival now, but the immovable force of the future. Amazon’s profits skyrocketing during the pandemic can attest to the power of online goods. It makes sense, then, family offices would make online businesses a part of their asset allocation.
The ability of online business to be flipped also makes inherent sense for a family office used to investing to later exit and liquidate their investment. They understand the power of a good flip and can see the potential to reap their ROI faster than other investment vehicles. When a portfolio of online businesses in similar monetizations or niches are presented to them, they see synergistic opportunities for growth amongst those businesses.
Overall, online business investment opportunities carry many of the same benefits that traditional investments bring with a bit more speed and more future appeal. This is why we have seen family office interest in our marketplace and throughout the industry. Forward-thinking family offices see the portfolios private equity are building in the FBA and SaaS industries, and believe now they, too, should start doing the same.
Why You Want Family Office Capital
Beyond the obvious “they have plenty of capital to deploy,” family offices bring so much more to the table.
Toptal summed up the advantages well: “One major benefit of working with a family office is the ability for the firm to bring more than financial capital to an investment. When thinking through investment partners, we often think about the ‘three forms of capital’: intellectual capital, relationship capital, and financial capital. In many cases, financial capital is the most fungible of all. If the principal of a family office has extensive industry experience and relationships that are relevant, that can be a huge positive to a firm seeking investment partners.”
Another advantage of family office capital is the quality and style of investment. Family offices have remained stable through turbulent times and have even found ways to earn more during the pandemic. They have been able to seize opportunities to scoop up investments while prices dropped and other major financial institutions struggled with liquidity. MFOs and SFOs provide stable investments where others have been hit by worldwide instability.
Family offices plan, thinking about the next generation of family wealth. They are looking for and are comfortable with long-term investments beyond the typical five- to 10-year investment cycle. Their style of investment is dictated by their family’s needs first, so their long investment style is atypical from other institutional investors. But since they usually have no committees or formal mandates to deal with, they are in control of how they want investments deployed, which allows everyone more speed and flexibility. This can also lead to faster exits, should that be in everyone’s favor.
If long-term, flexible, strategic investment is what you are looking for, a family office would make a great fit.
How to Raise Money from Family Office Investors
We had Richard Wilson, CEO and founder of the Family Office Club, stop by and talk to us on this YouTube Live clip about how to raise capital through family offices. He put the opportunity into perspective: “There are 225,000 investors out there worth $30M+, 55,000 worth $100M+, and there are millions of investors out there who can write a $200K check.” His life’s work has been in the family office industry, and he offered key insights on how to raise funds from MFOs and SFOs:
Align with Their Interests and Passions
Family offices are approached all the time to invest in the latest fad business or project. Putting yourself in their shoes this must get stale fast. Should you approach a family office to invest in your business, try to understand what their passions and interests are and how they align with your business. Perhaps you have a socially conscious investment. Finding an investor interested in ESG—environmental, social, and governance—criteria would make a powerful, aligned partnership. Do not underestimate the impact of like-mindedness.
Attract Investors vs. Chase Them
Again, MFOs and SFOs are asked constantly for money and get their fair share of cold pitches. To get your foot in the door, figure out how to make them come to you. Maybe you start frequenting events or places your dream investor hangs out; maybe you begin to build real relationships within their industry of expertise to build rapport. Creating an investor funnel where you are blogging, podcasting, and giving speeches around your investor audience’s needs will put you in the spotlight where there is little competition. This kind of action would make a family office more likely to come to you to invest together versus chasing them down for investment.
Put Their Needs First
Securing investment is not about getting cut a check and walking away with investors’ money. It is a balance of meeting each party’s needs. That may look like not cutting yourself a big check for running the business until you return their investment first. Make it clear you’re not in this just for yourself, and show how much you’re willing to do for them. Your investors will be more likely to sign a check.
Target Synergistic Partnerships
Let’s say you have an investment opportunity in a well-carved-out niche—insert “automotive business” as an example. You could source a family office with wealth and expertise in this field. If they have active businesses in the automotive niche, they may want to create synergies like cross-business advertising or a bolt-on acquisition. When there is a clear relationship between what you have and they have, and you can help each other, you’re more likely to win funding.
Make Due Diligence Easy
The onus should not be on your investor to vet your proposed investment. Make things easier for them by connecting experts to work with them on the deal to do due diligence on the business. This could be a doctor who has exited their own practice in a healthcare deal, or this could be working with a trusted broker and transacting through a vetted marketplace in an online business deal.
Offer to Be the Operator
Often, a family office will want to invest in a business with a team to run the business in place. If you want family office investment, offering to operate the business (with demonstrated experience to do so) makes it easier for them to say yes to investing in you.
Establish an Investment Minimum
An investment minimum allows a “try it before you buy it” approach to investment. For example, instead of pitching a $500K investment to buy a business, you could offer investing in your business at a $25K minimum. That way, you have the chance to prove yourself and your investment, and the financial risk is negligible to the investor. With a proven investment, you can trust and graduate to larger investments. An investment minimum is not a widely used investment strategy in the online business world, but if executed well, it could incentivize wealth owners to dabble in online business with little initial financial risk.
Prove Your Business Model
A family office may not be well versed in online businesses and not understand that a website can, in fact, be a business. Should you pursue family office funding, prove that your website is a business they can recognize and see potential in. Come to the table with a management team in place, operations solidified, and your financials in pristine order. Bridge traditional business acumen with your online business investment pitch so the relationship is clear to potential investors.
Demonstrate Your Track Record
The longer you and your business have been successful, the better. A family office may not want to see a business only 18 months old. If you have longevity in your online business, for example, an ecommerce business that has been built for several years and has scaled to seven-figure returns or if you lean on a trusted platform like Amazon with proven success, you’ll have a better shot at securing funding. Your track record must be solid and will look even better with years behind your business.
Demonstrate Strong Deal Flow
As a serious portfolio manager out to raise capital to fund acquisitions, you must show you have strong deal flow within your portfolio. This signals that you’re out searching through hundreds, if not thousands, of businesses to look for the top-tier deals worth your investors’ money. You aren’t just bringing whatever deal you can get to the table; you’ve combed countless listings to find the best of the best. It also shows you have the experience and expertise to source and execute a large volume of great-quality deals, which leads to one of the most important keys to securing investment: trust.
People often invest in people they like over just businesses they like. Relationships matter more in the family office investment space versus venture capital. Making a cold pitch will not get you as far in this realm, so be prepared to put in the real work to establish trust beyond just your business numbers. Become a trusted, liked, and respected entrepreneur within their circle, and seeking family office investment may become less of a pitch and more of an ask of a friend.
Investing with a Family Office
If you followed any of the steps we laid out and successfully won over family office investment—congratulations! You’ve managed to secure some of the soundest funding available to entrepreneurs. There’s tremendous potential for family offices in the online business industry on both the buy and sell sides. Should you be curious about what you could earn from your online investment, our valuation tool can provide a proper baseline estimate.