Campden Research recently estimated there were 7,300 single family offices worldwide, with total assets under management of $5.9 trillion backed by an impressive $9.4 trillion in family wealth. Growing ventures seeking capital should view these statistics through the lens of partnership.
Family Offices 101
Family offices serve as private wealth management firms for ultra-high net worth individuals (i.e., individuals with over $30M in net worth). First pioneered by John D. Rockefeller in the early 1800s, modern family offices originally operated through exclusivity; each office existed to serve a single person or family’s wealth. In more recent decades, we’ve seen the evolution of multi-family offices that pool resources from different individuals or families.
Most family offices set aside a portion of their portfolio for venture capital and private equity. Traditionally, this takes the form of investing in funds, offloading the responsibility of due-diligence and deal flow to fund administrators. However, a recent global survey conducted by Silicon Valley Bank suggests that as many as three-quarters of family offices have invested directly in start-ups.
3 Tips on How to Approach a Family Office for Funding
Numerous ventures have found great success in courting a family office directly for capital, especially if it’s a good match. Here are three tips on how to do just that:
1. Focus on Family Office Investment Strategy Matchmaking
Before you email your opportunity to every family office you can find, you must understand that a wide variety of investment strategies exist between them. Primarily, each office falls across a spectrum of growth versus a preservation philosophy. A family office investment strategy focused on preserving wealth for future generations might be comfortable trading lower multiples for a higher focus on dividends if the underlying investment appears less volatile, whereas a family office investment strategy focused on growing wealth might think more like a venture capital (VC) firm by seeking out high-growth, multiple-potential startups.
Both growth and preservation offices generally prove excellent long-term capital partners. The time horizon for a VC fund is typically around eight years, whereas the time horizons for a family office is often generational. Even growth-oriented offices unlikely share the same “move fast and break things” mantra that VC firms stand by. This more considerate approach may yield advantages to some ventures and disadvantages to others. Consider your stage, traction, risk profile, and projected returns before approaching any office.
When dealing with single-family offices, understand that their wealth likely came from success in a single industry. And while it might seem like the most straightforward thing to do, you should not necessarily seek out family offices who service individuals who succeeded within your own industry.
For example, high net-worth individuals who generated their wealth in SaaS often enlist a family office to diversify their assets beyond SaaS. Unlike many VC or private equity (PE) firms, family offices do not focus on a single vertical or business model. If anything, family offices often feel overexposed within the industry they found most financial success. Consider searching for a family office with enough exposure to your industry to understand your needs, but not so specialized that you fail to add portfolio value through diversification.
2. Consider the Timing
According to the UBS Global Family Office Report 2020, an average of 13% of a family office’s portfolio exists as cash. This is a drastic change from the 2% reported by UBS/Campden Wealth in 2016. At that time, if you had pitched to a family office where almost all their assets were already invested, your process would have been much slower. In order to invest in your company, the family office would have likely needed to sell off assets. In times like those, consider pitching to family offices who service individuals of newly-minted fortune. These offices typically deploy capital much more promptly. You could also seek out family office portfolios that experienced a recent liquidity event; they will likely aim to rebalance their assets toward the preferred 2% cash position.
3. Get Creative on How to Find Family Offices
Unlike VCs, PE firms, and banks, family offices tend to be private, making the discovery process much more challenging for interested ventures. Consider Willett Advisors: the family office who manages the wealth of Michael Bloomberg. Their website contains merely 36 words and provides no names or emails to contact. Getting in touch with family offices requires more extensive efforts in networking.
Unless you already have many well-connected, wealthy friends, you will likely need to reach out to a few connections before you get in touch with a family office. To start, contact any attorneys you know. Many attorneys are connected with or already service family offices and ultra-high net-worth individuals, especially in the case of corporate attorneys. Family offices also tend to have preferred banks and accounting firms — use any warm connections here to connect with their wealthy clients.
Once you have connected with and pitched to a family office, be mindful that their generational mindset might play out in due diligence and deal timeframes. The speed you often see with VCs and angel investors may not be matched by a family office team. If your capital needs are pressing, you might need to adjust your raise timeframe or select a different partner for now.
Overall, family offices can serve as valuable partners for growing ventures. It’s up to you and your team to determine when and who is the right fit for your capital needs.
For a more streamlined connection approach, enlist in a venture finance firm like Venture First. We are connected to a multitude of family offices and deeply understand their individual investment philosophies, which allows us to closely matchmake with growing ventures. Connect with us today.
Originally published September 2020. Updated July 2021