Invest in a family business

Family businesses are a major force in the global economy

Family business characteristics

While family businesses have the unique characteristics of a family, they, like other companies are often in search of financing to propel growth. As a family grows and changes, the family business must also evolve to accommodate changing family dynamics. The future of the family members, maintaining the independent nature of the family business and the preservation of family unity depend on the growth of the family business and its capacity to generate sufficient profit for all its members.

The number of people who live off the family business revenue increases generation after generation. The future of the family and its unity are more likely to be key priorities of a family business in comparison to other companies, which brings additional pressure for growth that needs to be addressed.

According to the Family Firm Institute, they create more than 70% of global GDP. Yet, they share a number of characteristics that set them apart from other companies. These attributes include a strong desire among family owners to retain control of the business, an emphasis on managing the company with longevity in mind (as a legacy to preserve for future generations); and a desire for business information to remain confidential.

What HNWIs want ?

  • HNWIs generally self-manage a large proportion of their investments. According to KPMG Nearly three-quarters (72%) take responsibility for half or more of their investments. In addition, 61% say their investments are solely self-managed, or mostly self-managed, with experts consulted when needed. Only 25% manage their investments through a family office.
  • The majority (60%) of HNWIs are looking for investments with reasonable risks and reasonable returns and are focused on long-term capital appreciation. Both of these traits are well matched by investing in family businesses. Nearly half (44%) of HNWIs have previously invested in a family business and the vast majority (95%) say that it has been a positive experience in comparison to their other investments.
  • The main factor that would deter HNWIs from investing in family businesses is the possibility of conflict among investee family members.Apart from this, the main reason given for not making more of these types of investments is a lack of availability and limited information on the opportunities.HNWIs are happy to be involved and offer their advice, which is a trait that many family businesses are looking for. They would often like to have an equity stake, which (in some cases) could be a barrier to investment, although nearly half of family businesses say that they would offer equity given the right circumstances.

Family businesses can provide HNWIs with:

  • Sustainable business investment opportunities: family members rely on the business and have their reputation invested in its success
  • Investments with a reasonable level of risk and good capital security
  • Opportunities for growth
  • Chances to contribute advice and expertise and have a say in the companies future developments
  • Personalized touches and long-term relationships

HNWIs are appreciated as investors by family business as they are:

  • Patient investors that take a long-term view
  • Not focused on a rapid exit strategy
  • Trusted partners who can treat information with discretion and have lower reporting requirements and more flexibility than other sources of finance
  • Often people with family business experience, as the majority have earned their wealth through family businesses
  • High-level experts, who will make judgements based on an overall view of the business rather than focusing on details
© Dey Capital GmbH 2020 - Financial Advisory