International knowledge and strategic expertise key attractions of HNWIs

HNWIs’ international knowledge and strategic expertise

The overwhelming majority (92%) of family businesses canvassed in KPMG 2014 Global Family Business Survey that have attracted high net-worth individual (HNWI) funding say that the experience was positive in comparison with receiving financing from other sources. They explain this sentiment in part by pointing to HNWIs’ expertise and long-term investment expectations.

Partner, European Head of Family Business

KPMG in France

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One respondent from the United Arab Emirates noted this 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.”

A chairman and family member from Italy had this to say: “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 of early exits as they are patient and willingly give chances for the business to perform.” “HNWIs not only provided us with capital, but also their international knowledge and strategic expertise,” said one French finance director.

The benefit of longer investment timeframes

Indeed, when considering a possible investment from a HNWI, family businesses rate 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.

One 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

The survey revealed a marked split in views amongst family business members on the potential barriers to partnering with HNWIs, and the dividing factor was whether or not the respondent was a family member. Non-family executives appear to be much more concerned about potential interference, ranking this as the biggest drawback to such partnerships. Family members admit that finding a suitable partner can be difficult, but it was non-family members who expressed concern that the involvement of outside investors might jeopardise their position of influence within the company. Family members were, on the other hand, more secure in this regard.

For all respondents, the need to offer equity ranks as the second most important barrier to accessing this type of capital, although again non-family members tended to be 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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