Investment from HNWIs positive for family businesses

Investment from HNWIs positive for family businesses

A large minority of family businesses have, at some point in their business, made use of investments from high net worth individuals (HNWI) and other family business investment pools. According to our recent Family Business Global Survey, some 42% of family businesses have previously received direct investment from these sources.

Partner, Global Head of Family Business

KPMG in France


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Encouragingly, the overwhelming majority (92%) of those that have attracted HNWI funding say that their experiences of working with such individual funders was positive in comparison with their receipt of financing from other sources.

The added advantages of working with HNWIs

Among the advantages family businesses experienced from working with HNWIs was the expertise and long-term investment expectations of the latter.

One survey respondent from the UAE had this to say about HNWIs: “They are reliable and easily approachable compared to the other sources of finance; also we could add-on skills to our management through their expertise.” Echoing this point, a finance director from France said, “HNWIs not only provided us with capital, but also their international knowledge and strategic expertise.”

A chairman and family member from Italy had this to say on the subject: “HNWI individuals tend to stay loyal to their investment decisions and do not get restless if the business is going through a few rough times. They do not plan for early exits as they are patient and willingly give chances for the business to perform.”

Indeed, when considering possible investment from HNWIs, the family businesses responding to our survey rated longer investment timeframes and similar understanding of risk as the most important positive attributes on offer. These were followed by easier negotiations, lower reporting requirements, and a willingness to offer support and advice. A Brazil-based CEO said, “We feel the need to have more minds to work on different strategies and external investors could be the key to making effective business decisions.”

Across all respondents, the top reason family businesses offer for why they may be dissuaded from seeking investment from HNWIs and other family businesses is the potential for interference with management. However, the experience of many of those who have sought funding from these sources suggests that these fears may be unfounded. As a US executive said, “We seek investment from HNWIs because they tend not to interfere with the decisions of the company.”

Potential for HNWI-family business partnerships to grow

When it comes to potential barriers to partnerships between HNWIs and family businesses there is a marked split in views, according to whether the respondent is a family member or not:

  • Non-family executives appear to be much more concerned about potental interference, ranking this as the biggest drawback. Non-family firm members are also often concerned that the involvement of outside investors might jeopardise their position of influence within the company (while family members are likely to be more secure in this regard).
  • Family members on the other hand are less concerned about outsiders jeopardising their position of influence within the company. They say that finding a suitable partner can be difficult. They collectively stated that the second biggest barrier to such partnerships is the limited availability of capital from HNWIs and other family businesses.

Collectively speaking, the respondents felt that the need to offer equity ranks as the second most important barrier to accessing this type of capital, although again non-family members are more concerned about this than family members.

These results suggest that while many family managers and owners may be open to the idea of bringing in HNWIs and other family businesses as equity investors, the difficulties in sourcing this type of capital and finding the right investors are holding them back.

The potential for good partnerships clearly exists – however, misconceptions around interference and reporting requirements, together with a lack of coordination in sourcing HNWI investment, appear to get in the way. This is where further education from family business associations and other economic bodies may help to bridge the gap.

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