Search fund with family office
April 14, 2019
by a searcher from INSEAD in Sydney NSW, Australia
I am looking to raise a fund but also have the option of raising capital through my family business (owned by multiple share shareholders across an extended family). We don't have a family office setup, however I could potentially raise 50 to 100% of the search capital through the family business by making a strong proposal. Has anyone taken this approach and can you provide advice on how to approach this, pros/cons of family investment vs. outside investors, etc?
Thanks,
Jekin
from King's College London, University of London in Dubai - United Arab Emirates
I've been involved in a self-funded searcher deal in Asia. However, because the searcher couldn't raise enough (appx) equal units of finance they found a few big guns for 50-60% of the amount needed. What followed (as you probably guessed) is that my partners and I pulled out, because being a minority shareholder with one shareholder controlling all the power became uninteresting for us.
However, there are definitely some upsides - less investors to maintain, or rather one or two big ones to keep happy, etc.
Now as to the point of family vs. non-family, I think there are people in the network who can write books about it! :D. I think it all depends on the chemistry and balance you have in the family - are they well versed with working in a hands-off manner and respecting the chosen CEO, working as professional board members(setting targets, evaluating performance vs those targets, helping the company to pivot if needed, etc)
from Harvard University in San Diego, CA, USA
The pros of raising internal money: flexibility around the fund focus and the deal management along with potentially more favorable terms for you. It will probably be also more patient capital. You might also be able to buy-out the family investors in a more efficient and friendlier manner down the line if you want to run your company as the sole owner for the long-term
Cons: you might not have the benefit of a sophisticated board comprised of external investors. Your deal sourcing and vetting might also be less sophisticated. Lastly, if things don't go well, then the relationships with friends and family could be strained.
Best of luck.