Family office equity capital can have many attractive attributes for family business owners.
Family business owners and their advisors are somewhat familiar with private equity resources and some of the organizations that provide such capital: private equity firms, Small Business Investment Companies (SBICs), and Business Development Companies (BDCs), to name just a few. They are less familiar however, with one of the most family-friendly versions of equity capital, often called “patient capital” due to its longer term orientation. Family offices are the most common proponents of patient capital, and they are typically funded by families who’ve sold their businesses, have significant investable assets, and like to allocate more capital to direct investments in growing, private company enterprises.
In addition to offering longer investment horizons, of seven to ten years or more (more “patient capital”), family offices typically have the ability to offer more “family friendly” capital by investing in minority ownership positions (keeping control for the family) and in securities at the same level of ownership as the family (alignment of interests). Their structure is more congruent with the family’s long term goal of capital appreciation. In short, patient capital investors are often the best investors/partners for later-stage, or multi-generational, family situations where some of the owners want some liquidity, or growth capital, but also a flexible structure to retain both operating and economic control of their business.
While direct investing by families is certainly not new, the concept has been increasingly covered by the media. A recent EY report suggests that of the 10,000 family offices worldwide, at least half have been created during the past 15 years, and according to the Family Wealth Alliance, the U.S. has 3,000 family offices with over $1.2 trillion in collective assets. A recent article published in Middle Market Growth highlights many of the reasons that family businesses are often attracted to family office equity capital – long-term time horizon, flexible approach, and an emphasis on family culture.
Belden Hill Partners has long-focused on this form of “family compatible capital” and has unique contacts with family offices, hedge funds and specialized investment groups that provide longer-term, more “patient” sources of capital.