Are Family Offices An Untapped Resource For Startup Funding?
What is a Family Office?
Let's take a closer look at the question, “Are Family Offices an untapped resource for startup funding?” But first, let’s answer the question, “What is a Family Office?” Family Offices are private wealth management firms that serve the needs of high net worth individuals. While all Family Offices provide a wide range of financial services such as investment management, financial planning, asset management and more, many also offer charitable giving advice or even non-financial amenities such as concierge services, personal security and even lifestyle management.
There are both Single Family Offices (SFOs) and Multi-Family Offices (MFOs). Not surprisingly an SFO provides services for a single family while an MFO provides services for multiple families. MFOs are more prevalent than SFOs because they can offer economies of scale that most SFOs cannot match. According to the Family Office Club, there are slightly less than 3,000 SFOs and MFOs in the United States.
The size of a Family Office fund can range anywhere from a few hundred million dollars up a billion dollars or more. For the high net worth individual, a Family Office can offer advantages such as greater individual control over investments/wealth management and additionally, Family Offices tend to take a much longer term approach toward wealth management than traditional investment firms.
Do Family Offices Fund Startups?
For startup founders, the most common fundraising strategies include venture capital (VCs) Angel investors (angels), friends and family, and also bootstrapping, which generally relies on savings, investments, retirement account, lines of credit, home equity loans and sometimes, or even credit cards.
But in addition to the usual sources above, Family Offices are a less talked about method for raising seed or growth capital. For years, the Family Office has generally flown under the radar, despite the fact that there are thousands of them spread across the United States.
What Kinds of Funding Do Family Offices Offer?
For those that do offer startup funding an investment from a Family Office can come at nearly any stage of startup growth. There are some that will offer seed capital, while others are more interested in later growth raises such as Series A or Series B. In any case, the type of startup investments they are willing to make will vary from Family Office to Family Office.
And according to the Global Impact Investing Network (GIIN), a growing number of Family Offices are becoming interested in social impact investing. A 2019 Campden Wealth survey indicated that a full one-third of Family Offices are now interested in sustainable investing. A recent Reuters article noted that among many Family Offices, millennials have been a leading driver of the shift toward social impact investing, but this is not always the case. Align Impact, an independent, specialized impact advisory firm, notes that they have investors across four generations making social impact investments.
Securing startup funding or growth capital from either an SFO or an MFO often comes with a number of extra perks, including:
Investment decision-making can often be quicker because many Family Offices that do invest in startups have a less formal process than other types of investors.
They will often help connect you make some incredible connections, including connecting you with other Family Offices, other investors, strategic partners or in some cases, even customers.
In general, they tend to be more patient than other types of investors.
Many Family Offices are more flexible and understanding if the startup needs to pivot due to market changes or other factors.
Family Offices tend to have a much greater appreciation for the amount of effort a founder or founding team puts into the startup.
Many Family Offices are willing to serve as mentors to the founder or founding team.
Family Offices in general, tend to offer greater flexibility in terms of what they are looking for in an exit agreement.
Do Family Offices Offer Grants?
Among Family Offices, there is a growing interest in philanthropy such as grant giving. Indeed, some Family Offices offer grants to nonprofit organizations or other charities of their choice. Most often, you will find that those Family Offices that do offer grants or engage in some other type of charitable giving, are managed by some of the many private banks such as Bank of America, Northern Trust Private Bank and others favored by high net-worth individuals. Banks such as these and others have charitable arms that provide charitable administration on behalf of Family Offices.
There are also an increasing number of wealth management firms (e.g., Align Impact, Rockefeller Philanthropic Advisors, etc.) that exist solely to support Family Offices in either social impact investing, philanthropic giving, or both.
A 2020 joint study by Rockefeller Philanthropy Advisors and Campden Wealth shows that the most common philanthropic causes among Family Offices include education, health, arts and culture. There are also community foundations such as the Foundation for the Carolinas and others that manage charitable giving for Family Offices. Family Office Advisory – a global Family Office and wealth management firm, says that some Family Offices even join forces and create their own charitable foundations.
How Do You Find Family Offices?
By design and by choice, finding the right Family Office and connecting with the right people at each is tough. They value their privacy, and do what they can to keep it that way.
As I mentioned, Family Offices are managed by either private banks or specialized wealth management firms. Doing a Google search is one way to find them, but this can be very time consuming and cumbersome, particularly because the search results will rarely–if ever–provide the contact information you are looking for.
You can also use LinkedIn to search for Family Offices but there are some drawbacks here as well. First, not all Family Offices have a presence on LinkedIn and second, it still may be difficult to find the right person with whom you want to speak. If you use LinkedIn for your search, you can search for Family Offices or the other option is to look for specific high net worth individuals with whom you would like to connect and then see if you share any mutual connections.
Subscribing to a specialized database is the other way to find SFOs and MFOs. These databases may be the best introductory way to start gathering information about SFOs and MFOs. Some of these database options include:
There are of course many others, but these are some of the more well-known ones you can use. But even if you use a database, you still need to find a warm connection before approaching a Family Office. The databases may give you names but won’t provide the direct contact information for the person with whom you really want to speak.
How Do You Approach A Family Office?
In general, Family Offices tend to be elusive and highly selective, both in terms of their investments and/or charitable giving/grant making. A warm introduction is the best and most effective way to approach a Family Office. Just like other types of investors, cold emails or cold outreach are rarely effective with SFOs and MFOs. As a rule, they do not want to be hounded with unsolicited funding or investment proposals.
LinkedIn can be among your most useful assets for finding the right people who might be willing to give you a warm introduction to a targeted SFO or MFO. Start by searching for Family Offices and/or specific high net worth individuals with whom you would like to connect. If there are any first or second degree mutual connections, you can then start a dialogue and then hopefully, ask for a warm introduction to your target SFO or MFO. Here are a couple of other tips:
Be thorough in your search – look for common connections such as college alumni, volunteer interests and similar.
Be a part of the LinkedIn communities where SFOs and MFOs tend to congregate.
In being part of these groups, don’t be pushy, but instead, start or engage in intelligent, relevant conversations.
Be strategic in your approach:
Only seek out SFOs and MFOs that are aligned to your company, organization or goals.
Find out everything you can about the Family Offices you want to target and the people behind them. Learn about their industries or sectors of interest; the stage at which they like to invest; the previous startups in which they have invested; their preferred exit strategy; the size and type of investments they like to make; and their typical level of involvement in the startups in which they invest.
The same is true if you are seeking a grant from an SFO or MFO.
If your proposed request is not an ideal match for any of your targeted Family Offices, then you need to just move on until you find the right one
In an online community or even a messaging thread, don’t ask for money, ask for advice. Your goal should be to build a rapport and get a meeting. Getting to the ask takes time.
Never blindly approach a Family Office and don’t use a ‘shotgun’ approach, sending out mass emails or LinkedIn messages. I am a (small-time) angel investor and receive unsolicited pitches every single day. Not once has any of those unsolicited pitches been successful in securing an investment (or even serious conversation) from me.
In the pre-pandemic world, conferences and in-person networking events were also a way to make connections with persons affiliated with Family Offices. Hopefully, those opportunities will again be accessible within the next year or so. But even in these real-world situations, your approach should be strategic, with the goal of getting a meeting, not immediately asking for money.
This post explored the question, “Are Family Offices an Untapped Resource For Startup Funding?” Turns out the answer is sometimes yes and sometimes no. Making the determination as to whether a Family Office is the right investment vehicle for your startup requires doing lots of homework.
I would like to extend a special thank you to Francisco Martinez, Director of Philanthropic Advising & Sr. Lead Program Officer, Impact Solutions – Bank of the West | BNP Paribas Group for providing his input and insight for this post. Interested in learning more about Family Offices and how to approach them either for a startup investment, a social impact investment or a grant?
Ron Flavin is a growth and funding strategist who helps entrepreneurs and organizations to develop innovative growth strategies, identify new revenue sources or secure the funds they need to grow and prosper. Using his own unique methodology, he work with his clients to develop a step-by-step growth and funding action plan that builds a bridge between vision and financial goals. Using this model, he has obtained more than $200 million in funding for his clients, and been part of decision-making teams that have allocated more than $1 billion in funding. As a result, Ron knows first-hand what those who hold the purse strings look for when determining which proposals get funded and which ones get tossed aside.