How to attract a family office to invest in your business? Is an investment from a family office the right move for funding your business?
Family offices can provide valuable capital to startups, existing businesses, and even funds. If your company needs more capital, they could be a great choice.
So, how do they fit into your financial and operational needs? What are the pros and cons of accepting investments from family offices? If you decide to explore and pursue this route, how do you go about attracting them to offer you a great term sheet?
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Here is the content that we will cover in this post. Let’s get started.
- 1. What Is A Family Office?
- 2. What Do Family Offices Invest In?
- 3. The Pros & Cons Of Accepting Investments From Family Offices?
- 4. The Pros Of Fundraising With Family Offices
- 5. Filling The Funding Gap
- 6. Speed In Fundraising
- 7. Fewer Hoops Than Loans
- 8. The Cons Of Fundraising With Family Offices
- 9. Limited Funds
- 10. Lack Of Additional Value
- 11. Can Take More Work
- 12. Where Do Family Offices Fit Into Your Startup Fundraising & Capital Stack?
- 13. How Do You Attract A Family Office To Invest In Your Business?
- 14. What Do They Want?
- 15. Get Busy On The Most Important Metrics
- 16. Make Some Noise About It
- 17. Create A Great Pitch Deck
- 18. Perfect Your Verbal Pitch
- 19. What Connections Do You Have?
- 20. Start Building Relationships, Trust & Confidence
- 21. How Soon Should You Start Raising From Family Offices?
- 22. Alternatives To Investments From Family Offices
- 23. HNW Individuals
- 24. Bootstrap It
- 25. Startup Accelerators
- 26. Summary
What Is A Family Office?
Family offices have been around since at least the late 19th century and the Rockefeller family.
Put simply, a family office is a private company that makes investments and manages wealth on behalf of a wealthy family.
Traditionally this means a family with at least $100M in investable assets and capital. This is largely due to the risks, costs, and management they present. Though there is no reason that individuals and families can’t set up some form of a family office with less capital.
A family office may be structured as an LLC or other corporation. They operate as a form of private equity investment firm. Though there are increasing variations and structures.
For a start, ‘office’ is now a much more ambiguous term. It’s more likely to have a virtual or outsourced family office arrangement. One with remote and dispersed professionals covering legal, investing, and accounting.
In addition to Single Family Offices (SFO), which focus on serving the needs of one family, there are also more multi-family offices that lower operational costs by serving several families.
According to banking and analytics firms, there are around 6,000 family offices in the US and over 10,000 globally. With the huge windfalls many tech entrepreneurs and CEOs have been experiencing, this is a trend expected to keep on growing.
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What Do Family Offices Invest In?
There are really no limitations on what family offices can invest in.
Some simply send funds to other money managers and advisors to deploy. Others have favorite focuses. That may be private funds, real estate, or startups. To diversify, they may also invest in cryptocurrencies, wine, and other emerging asset classes.
Keep in mind that in fundraising, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
The Pros & Cons Of Accepting Investments From Family Offices?
There are many family offices out there resulting in a variety of different experiences. Here are some of the pros and cons you may find in this space. Learn more about them to understand how to attract a family office to invest in your business.
The Pros Of Fundraising With Family Offices
1. Filling The Funding Gap
Family offices may fill essential capital gaps in between the earliest, more casual funding, and qualifying to raise from the largest VCs and private equity firms. If you don’t check all the boxes for a big Series B yet, but you’re beyond the point of friends and family, and amateur angel investors, this may be time to explore family offices.
2. Speed In Fundraising
It may be faster to raise smaller amounts from a diverse base of different family offices than to get stuck in fundraising for extended periods just hoping to hit that one big home run.
3. Fewer Hoops Than Loans
While family offices and their professionals will do their homework and due diligence, their investment decisions may be based on other factors than just what a bank loan underwriter would look at, along with all the paperwork hassles that involves.
The Cons Of Fundraising With Family Offices
1. Limited Funds
While there are certainly family offices of billionaires, there are many working with far less capital. Especially when you consider how much they may be willing to put into a single investment. Each may only consider hundreds of thousands or a few million.
2. Lack Of Additional Value
Angel investors with domain experience, startup accelerators, and VCs can often bring a lot more value than just the money. You may not get that same support and extra resources with this form of capital.
3. Can Take More Work
If you have to educate and convince family offices to invest in something brand new and strange to them, it can be more time-consuming than going to those already looking to fund opportunities like yours.
Where Do Family Offices Fit Into Your Startup Fundraising & Capital Stack?
Where might family offices fit into your business funding needs? And, how to attract a family office to invest in your business?
There are many forms of money that can be used to finance your business journey. This can include credit and debt in the form of loans or convertible notes. As well as self-funding with savings and cash on hand, equipment or asset financing, and equity fundraising.
This generally follows the following rounds of funding.
- Pre-Seed – Participants in this round may include cofounders and friends and family.
- Seed Round – Depending on your stage when raising your seed round this may include angel investors, startup accelerators, and family offices.
- Series A – Family offices can also invest in Series A rounds. Especially larger ones with more capital to commit. You’ll also find venture capital firms and private equity participating at this stage.
- Series B – While they still have a presence in deals, family offices play a smaller role here due to the size of rounds and the amount of capital being raised by this stage. Though they may co-invest or invest through other funds who are participating in this round.
- Series C & Later Rounds – Most family offices will be far too small to be able to participate at this stage of funding. You may however see them investing through other funds and firms that are involved in later-stage startups.
How Do You Attract A Family Office To Invest In Your Business?
If family offices seem like a good fit for your business funding needs, how do you go about soliciting or attracting them to invest in you? In other words, how to attract a family office to invest in your business?
What Do They Want?
The first step in this process is to recognize what investors want, need, and are looking for in an investment. Only then can you check the boxes.
Do your research or lean on your fundraising advisors to learn who is actively investing, is interested in your space, how much they have to invest, and the most important metrics and factors in their decision.
Get Busy On The Most Important Metrics
Now you know what they want, and what you need to get the money, it is time to get busy firing on those important metrics and factors.
This may be the strength of your team, customer acquisition traction, revenue growth, unit economics, or something else.
If you’ve got to have the money, then your team has to be focusing on the factors that will bring it in.
Make Some Noise About It
Once you are nailing the right numbers and factors, you need to make some noise to attract those investors.
If they are already in your database and are following your progress, then this can be conveyed through your investor updates, social channels, and blog.
You can also get to work on some PR and be sure you are in what they are reading and listening to.
Create A Great Pitch Deck
Your pitch deck is where this all comes together. This is where you show off what is important to them. Where you demonstrate your growth, potential in this big market, and how you are de-risking the investment for them.
You are already doing plenty of innovating elsewhere. Speed up this step and nail it by using a proven pitch deck template.
Perfect Your Verbal Pitch
Even with a great pitch deck and visuals and all the right numbers, you still need to be able to convey it well verbally. This may be in person or over a video call.
Hone it, practice it, and be ready to adapt to the room.
This is where you will really close the money.
What Connections Do You Have?
Who do you know that has a family office? Which family office representatives do you know?
If you don’t have these contacts in your database already you need to make them. This may be through introductions, networking, and your advisors.
It ultimately all comes down to who you know, and who knows you.
Start Building Relationships, Trust & Confidence
This isn’t just about having a contact in your database or having shaken hands once at a large convention. Or even being able to slide into their DMs or spam their email inbox.
You want real relationships with the individuals involved. You need to build trust with them and give them the confidence that you will make the most of their money, and can deliver on your promises. This can clearly take some time.
How Soon Should You Start Raising From Family Offices?
To calculate this, you need to understand both how long it can take to close a round of funding once you are actively raising, as well as to get to the point in those relationships, and the business that you can actually raise.
This may take anywhere from a couple of months to a couple of years. There is really no time to waste.
Make a countdown of what you need when, and keep focused on that. Be making the connections, developing the relationships as you build your business and your materials. Then be sure you have what you need to present ahead of your financial needs to account for the time it will take to raise and close.
Family offices are only one investor option you can consider for raising funding. If you would like more information about how to find investors for your startup, check out this video I have created. You’re sure to find it helpful.
Alternatives To Investments From Family Offices
Knowing how to attract a family office to invest in your business is important. But, investments from family offices may not be the best option for every business. Nor the best source of capital at every stage. You need to be strategic in your fundraising, and take into account the timing, value adds potential, and the big picture.
Even if it is a good fit for you, but you just aren’t getting the results, then you may need to check out other alternatives to keep your business afloat and growing for now.
These may include the following.
Depending on your stage you may look to high net worth individuals in several forms. It may be friends and family, cofounders, or angel investors.
You may just have to bootstrap it for a while. Use what you have and be more creative and resourceful. This can also have great advantages when you do get to the stage for raising. You may face less dilution and have more negotiating power. Plus, you’ll know how to make that money go a lot further.
You may also consider applying to a startup accelerator. They can help you with a cash infusion. Then push you to make the progress needed to raise even more money on demo day.
Family offices can be a great source of investment for businesses. If you are successful you may even end up starting your own. This is why you should know how to attract a family office to invest in your business.
They aren’t a fit for every company, at every stage. Though it is definitely worth exploring the benefits, making the connections, and getting some pitches in.
You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.