Family offices are becoming increasingly attractive for startups for several reasons, offering unique advantages compared to traditional funding sources like angel investors and venture capital firms. Some of the key factors driving this trend include:
- Patient capital: Family offices typically have a longer-term investment horizon, as they focus on preserving and growing wealth for future generations. This means they may be more patient with their investments, allowing startups the time and flexibility to develop and scale their businesses without the pressure of short-term returns.
- Flexible deal terms: Family offices often have greater flexibility in structuring deals and investment terms, as they are not bound by the same constraints as institutional investors. This can result in more favorable terms for startups, such as lower equity dilution, less restrictive covenants, or customized agreements tailored to the specific needs of the company.
- Strategic alignment and values-based investing: Family offices are increasingly focused on investing in companies that align with their values and long-term goals. This can lead to stronger partnerships and support, as the family office and the startup share a common vision and purpose. For startups with a focus on sustainability, social impact, or other values-based missions, partnering with a family office can be an excellent fit.
- Access to networks and resources: Family offices often have extensive networks and connections across various industries, providing startups with valuable introductions, partnerships, and resources. Additionally, the backing of a reputable family office can enhance a startup's credibility, making it easier to attract customers, partners, and additional investors.
- Personalized support and mentorship: Unlike institutional investors, family offices typically have a smaller portfolio of investments, allowing them to provide more personalized support and attention to the startups they invest in. This can lead to a closer, more collaborative relationship between the family office and the startup, with tailored guidance and mentorship to help navigate the challenges of building a business.
- Diversification and risk appetite: Family offices often seek to diversify their investment portfolios, and investing in startups can provide an attractive opportunity for exposure to high-growth sectors and potential outsized returns. As a result, some family offices may be willing to take on the risks associated with early-stage investments, providing much-needed capital for startups that may not yet be attractive to more risk-averse investors.
Overall, family offices can offer startups a unique blend of patient capital, flexible terms, strategic alignment, and personalized support, making them an increasingly attractive funding option for entrepreneurs seeking a strong, long-term partnership with their investors.
The differences between Single and Multi Family Offices
A family office is a private wealth management advisory firm that serves high-net-worth families or individuals. They can be categorized into two types: single-family offices (SFOs) and multi-family offices (MFOs).
Single Family Office (SFO): An SFO is dedicated to managing the wealth and investments of a single high-net-worth family or individual. The primary focus of an SFO is to address the specific needs and objectives of that particular family.
- Customized services: SFOs provide personalized, tailor-made services that cater to the unique needs and preferences of the family.
- Confidentiality: SFOs offer a higher degree of privacy and discretion, as they exclusively serve one family.
- Control: The family maintains full control over investment decisions and operations in an SFO.
- Limited diversification: SFOs may have less access to diverse investment opportunities compared to MFOs, as they serve a single family.
- Higher costs: Operating an SFO can be more expensive due to the need for dedicated staff, resources, and infrastructure to serve one family.
Multi-Family Office (MFO): An MFO serves multiple high-net-worth families or individuals, pooling resources to provide a broader range of services and investment opportunities.
- Economies of scale: MFOs can lower costs by sharing resources and infrastructure across multiple families, making them more cost-effective.
- Diversification: MFOs have access to a wider range of investment opportunities due to their broader client base and larger asset pool.
- Expertise: MFOs often employ a diverse team of professionals with specialized expertise in various fields, providing clients with access to a broader range of knowledge and skills.
- Less personalization: MFOs may provide less personalized service and attention compared to SFOs, as they cater to multiple families.
- Potential conflicts of interest: Serving multiple families may create conflicts of interest when allocating resources or investment opportunities.
Which is better for startups? The suitability of an SFO or MFO as an investor for a startup largely depends on the specific needs, objectives, and preferences of the startup. Here are some factors to consider:
- Alignment of interests: A startup should assess how well the family office's investment objectives and values align with its own goals and vision. This is crucial for a successful long-term partnership.
- Capital and resources: A startup should evaluate the family office's ability to provide not only the required capital but also access to networks, resources, and expertise that can help accelerate growth.
- Personalization and support: Some startups may prefer the more customized and hands-on approach of an SFO, while others may benefit from the broader expertise and resources of an MFO.
Ultimately, there is no one-size-fits-all answer to which type of family office is better for startups. Founders should carefully assess their needs and preferences, and evaluate the pros and cons of each type of family office to determine the best fit for their company.
When it comes to investing in startups, the criteria and investment amounts for family offices can vary widely depending on their specific investment strategy, risk appetite, and areas of interest. However, there are some common factors that family offices typically consider when evaluating startup investments:
Alignment with the family's values and interests: Many family offices prioritize investments that align with their values, mission, or long-term objectives. This could include a focus on specific industries, social impact, sustainability, or other values-based criteria.
Growth potential: Family offices generally look for startups that demonstrate a strong growth potential, scalable business model, and a sizeable addressable market.
Management team: The quality and experience of the startup's management team is a critical factor in the investment decision-making process. Family offices typically seek founders and teams with a proven track record, relevant industry expertise, and strong leadership qualities.
Competitive advantage: Family offices are more likely to invest in startups that have a unique value proposition, proprietary technology, or other competitive advantages that set them apart from competitors in their industry.
Financial performance and traction: While early-stage startups may not yet be profitable, demonstrating solid financial performance, growing revenues, or strong customer traction can make them more attractive to family offices.
Exit strategy: Family offices typically seek startups with a clear and achievable exit strategy, whether through an IPO, acquisition, or other liquidity events, to ensure a return on their investment.
The investment amounts from family offices in startups can vary widely depending on the size of the family office, the stage of the startup, and the specific investment strategy. Investments can range from a few hundred thousand dollars in early-stage startups to several million dollars in more mature companies. In some cases, family offices may also co-invest alongside other investors or participate in funding rounds led by venture capital firms.
It is essential for startups seeking investment from family offices to research and identify family offices that align with their values, objectives, and industry focus. Establishing relationships with these family offices and demonstrating a strong alignment with their investment criteria can increase the likelihood of securing funding.
A list of Family Offices you should have a look at
While it is important to note that family offices often maintain a low profile and may not publicly disclose their investments or clients, here is a list of some well-known single and multi-family offices in Europe:
Single Family Offices (SFOs):
- RIT Capital Partners (Rothschild Family) - United Kingdom
- Ferd (Wallenberg Family) - Norway
- KIRKBI (Kirk Kristiansen Family, LEGO) - Denmark
- Exor (Agnelli Family, Fiat) - Italy
- LetterOne (Mikhail Fridman, Alfa Group) - United Kingdom
- Pontegadea Inversiones (Amancio Ortega, Inditex) - Spain
- Groupe Arnault (Bernard Arnault, LVMH) - France
Multi-Family Offices (MFOs):
- Stonehage Fleming - United Kingdom
- HQ Trust - Germany
- Pictet Wealth Management - Switzerland
- UBS Wealth Management - Switzerland
- Lombard Odier - Switzerland
- Sandaire Investment Office - United Kingdom
- Hottinger Group - United Kingdom