$500,000 to $15m typically
Long-term
A minority stake in your business
Varies
Fast growth
Startups, small and medium-sized businesses
Family offices are private advisory firms set up by affluent families (or individuals) primarily to manage their wealth, investments and trusts –and on more day-to-day basis to cater to their financial and legal needs.
Family offices are an important source of funding for small and medium-sized businesses, despite their reputation for being elusive and highly selective.
You’ll come across many different definitions but usually a family office will offer wealth management (i.e. investment), wealth planning/transfer, budgeting, insurance, charitable giving, family governance, trust and corporate services, and tax planning. A family office might also handle non-financial issues such as private schooling, travel and other household arrangements.
Looking at the wealth management side, a family office invests in a similar way to a venture capital fund, but there is one potential difference. A family office typically manages money that’s been built up over generations and so, not surprisingly, the investment focus tends to be similarly long-term. In other words, a family office is more likely to offer patient (longer-term) capital because there is less imperative for fast returns – after all it doesn’t have a range of investors to appease on a short-term basis.
Some family offices have a general investment strategy while others might look to invest in companies that are (directly or indirectly) related to the core business on which the family wealth is built – or in companies that might boost the family’s legacy.
Single Family Offices (SFOs) usually look after one family, whereas multi family offices (MFOs) pool the wealth of multiple families.
The number of family offices in operation globally has risen tenfold over the last decade, to around 10,000. This correlates with the rapid increase in the number of ultra high-net-worth individuals (UHNWs) globally over the same time period.
Family offices are extremely attractive investment niche for SME’s. If you are seeking fast growth and want to benefit for generations of expertise a family office could be a life line.
In return for investment amounts of $500,000-$15m you will likely give up a share of your business (equity).
You might also want to consider debt crowdfunding – more commonly known as peer-to-peer-lending (P2P). Peer-to-peer lending (P2P) is a type of business loan by a large number of private investors (individuals, businesses or institutions) to your business, usually through an online platform. The idea is that lenders and borrowers get a better rate than they would through banks – plus decision lead times are significantly shorter. P2P is also known as debt crowdfunding or loan-based lending.
Peer-to-peer lending (P2P) is different to standard business loans. P2P matches private investors looking to invest their money with people who want to borrow it. In theory, compared to banks, P2P pays higher interest to lenders and charges lower rates for borrowers. The stronger your business profile, the lower the interest rate on your loan.
Other types of equity finance – Equity finance refers to the capital an external investor injects into your business in return for a share of ownership (equity) and/or some control of the business. Equity finance investors therefore have a claim on your future earnings but, in contrast to a loan, you don’t pay any interest – nor do you have to repay capital. If you opt for equity financing, you’ll sell a stake in your business in return for funds. This is in contrast to debt financing (e.g. a loan or a bond) where you take out a loan and pay it back over time with interest.
Venture capital – Venture capital is financing given to startups and early-stage businesses. Venture capital funds look to invest larger sums of money than business angels – typically more than £250,000 – in return for an equity stake. Venture capital is most suited to high-growth businesses with long-term growth potential, i.e. those destined for sale or public listing (IPO).
Equity crowdfunding – Equity crowdfunding is a type of equity finance whereby people (‘the crowd’) invest in an early-stage unlisted company, in exchange for shares (equity) in that company. Individual investors thus become shareholders and stand to profit if the business does well – they might also lose some or all of their investment. Equity crowdfunding usually takes place over an online platform.
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