If there was one assumption you could make about family businesses as a whole, you’d think it would be that all would guard equity closely. After all, the essence of how the business is run is dictated by the fact that it is owned by one family.
Our 2014 Family Business Global Survey disproved this theory.
Traditionally family businesses don’t want to lose control over their business to outside investors, an High Net Worth Individuals (HNWIs) shy away from making investments where they will have no say over the running of the business.
It is because of this that each party has more or less left the other alone, thinking themselves as unlikely bedfellows. But in fact, family businesses are becoming more and more open to giving up some equity in exchange for industry expertise. And on the flipside, HNWIs are attracted to how family businesses conduct business, and are therefore less likely to want full control of operations.
Our Global Survey found that both parties are more willing to meet each other halfway than previously thought, meaning that family businesses have another financing avenue open to them.
Our Global Survey uncovered the fact that most family businesses are not only open to input from knowledgeable investors, but in some cases are open to offering a board seat or equity to investors who can offer more to the business than capital.
HNWIs tend to wrongly believe that family businesses are set in their ways and have no need for outside input. But modern business calls for more than sticking with what has always worked, and the smart family businesses see this. Bringing in the right expertise to ensure the legacy of the company is worth the equity.
“We depend on internal profits first and then find ways of encouraging high-net-worth individuals as they tend to focus on long-term investments,” says one Australian family CEO respondent to the KPMG Family Business Global Survey.
Despite only 22% of respondents declaring HNWIs as one of their three most important sources of capital, all respondents who have engaged with this type of investment have deemed it a positive experience.
A very important plus to HNWIs is the fact that they are mostly interested in long term investment. This suits the mind-set of a family business, who aren’t after quick money, but more about establishing a legacy for future generations to continue to grow.
A Swiss executive respondent says the reliability of HNWIs has meant they have now replaced bank debt: “In the early days, we’d rely on banks, but now we depend on HNWIs and other family businesses as these are patient, long-term investors.”
Family businesses are ready to evolve with their industries, rather than keep to old business patterns and risk dying out, and they are increasingly coming round to seeing HNWIs as the perfect partner to bring into their business strategy. It’s not surprising that this evolution is worth the equity to these businesses.
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.