Why Raise Money From Family Offices, Oppose To Venture Capital?

Family offices have been a great way to connect with successful entrepreneurs, professionals, and individuals with shared perspectives. While most companies endlessly pursue VC firms, family offices are sometimes forgotten.

Long-term capital. Family offices are long-term focused. They exist to preserve, grow, and transfer wealth across generations. This means if you are not in for the long game, family offices probably isn’t for you. Unlike venture capital firms which have contractually shorter time horizons, family offices are aligned with Missionaries, not mercenaries. Furthermore, family offices do not adopt a “spray and pray” approach to investing but rather seek out disruptive opportunities and then concentrate resources on these opportunities.

Stronger alignment between founders and Family Office. Founders benefit tremendously from the entrepreneurial DNA of the founders of most family offices, in addition to the insights and connections of the family. This is where family offices generally outshine VC’s, with surgical focus, family offices provide advice, strategic introductions, and capital beyond early-stage investing without the drama and aggression because every deal is based on high-conviction. An example will be a former financial entrepreneur investing in FinTech startups due to his/her unique insights. You see mentorship, networking, experience, in addition to funding coming together in a win-win manner.

Strategic partner as opposed to a Financial partner. This means doing more than providing capital to generate incremental alpha. When working with a family office, early stage companies should understand why the family office exists, and be prepared to develop and implement a long-term plan to deliver long-lasting value. This means that management and sound governance must be high priorities, which is why many family offices require a seat on the board. The company will have access to the family office network to provide strategic advice, market intelligence, and other tangible benefits that require a level of oversight. Finding the right balance between giving the entrepreneur room to grow and the need for transparency that family offices require is critical in making these partnerships successful.

Family Offices have Fun! Yes, you heard that, family offices can be alot of fun as you get to know the family more. Invitations to clam bakes, family events, and networking with other professionals and individuals are an opportunity to grow. The family office has you there because they really want you there, not because you’re just another portfolio company and they need to fill seats.

Two main points to consider when working with Family Offices:

Confidentiality: Family offices prefer their privacy, most investment deal details remain quiet, with little to no PR. This is in contrast to VC investing where it’s all about the splash. It’s no secret that many VC’s bank on this publicity since brand association creates buzz in the VC space….and drama. This aversion to publicity, unfortunately, does come at a cost to entrepreneurs. For one, it is much harder to build a halo effect associated with VC publicity. For example, being mentioned on TechCrunch because a splashy VC invested in your startup could bring even more publicity and attract talent. However, if your fundamentals are strong, you don’t need TechCrunch or splashy VC mentions for validation.

Integrity and communication: Most VC’s and “investors” will tout their “connections, insights” and all the “value” they bring to your company (just to get on your cap table). Integrity is the currency when dealing with family offices. High-conviction, impact and mission driven investing towards wealth preservation is what drives family offices. This requires a great deal of trust and a belief in your mission. When there is alignment on these core fundamentals, family offices and entrepreneurs are able to achieve what even the most aggressive VC’s simply can’t. Family offices rely on it more due to their niche position within the broader capital markets. For this reason, family offices will always outstrip venture capital as sources of “evergreen” capital who will stand by you during inevitable times of distress. Thus, it is important to have good chemistry with the family office.

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