Family Office

What is a family office?

Wikipedia, the free encyclopedia describes a family office or single-family office (SFO) as: a private company that manages investments and trusts for a single-family. The company’s financial capital is the family’s wealth, often accumulated over many family generations.

Why Use Family Office Financing?

One development of particular interest about family offices is the growing inclination to lend money to start-ups and small/medium sized businesses. Family offices are going out of their way to identify creative investments in entrepreneurial ventures, especially in businesses that are outside their own area of expertise, Forbes reports. Sometimes family offices seek to invest in local businesses as a way to contribute to the community. In addition, many family offices manage the wealth of entrepreneurs who are themselves eager to promote the next promising generation of start-ups.

A chief advantage for the family office directly investing in a start-up is that it avoids committing capital through intermediary fund managers, as was traditionally the case in public markets. This saves on management fees from 1.5 to 2 percent as well as up to 20 percent of profits that typically go to fund managers.

However, family offices are often overlooked by small businesses as a funding source, if only because many people aren’t generally aware of them and how they work.

What’s the Advantage of Family Office Funding?

Family offices provide financing when other funding sources can’t or won’t do so.

Additional advantages include:

  • Direct connection to a potentially valuable mentor. While venture capitalists also provide mentoring support to start-ups, the very nature of a family office tends to make them a little more patient in getting a return. It’s often the case that the family the office represents has been in your shoes, and is more likely to sympathize with your situation if and when setbacks occur.
  • Because family offices have a minimum of $100 million in assets, they are a more reliable funding partner than other options. This particularly helpful when market conditions are fluctuating or are otherwise uncertain, which is when new investing tends to decline.
  • As the Small business Investor Alliance points out, family offices typically have a better understanding of middle market companies, are more flexible and are not constrained by committee “group think” common to most public institutions.
  • Family offices represent someone who knows something about getting rich.