Family businesses look to wealthy investors for financing

More than half (58%) of family businesses are currently seeking external financing to fund their investment plans, finds a KPMG survey.

And finding the right strategic investment partner can be challenging. While family businesses create more than 70% of global GDP, many find their fundraising options limited, notes the survey.

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Private equity funding often requires the entire business to be sold to maximize value in the event of an exit, and corporate strategic partners see any investment as part of a longer-term plan to secure full control. As a result of these limitations, many family businesses may not be maximizing their growth potential, notes a release.

There is one possible underutilized route — high-net-worth individuals, many of which have family business experience, as well as significant investment capital.

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There are up to 14 million of these types of investors around the world, with about $53 trillion total in wealth, says KMPG. Survey results show 37% of these wealthy individuals name long-term capital appreciation as their top driver for investment, while 23% of family businesses name long-term orientation towards investment returns as their top investor characteristic.

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“Education and awareness on the potential benefits of these partnerships have emerged as important first steps to link these two groups,” explains Christophe Bernard, KPMG’s global head of family business.

Other key findings for high-net-worths include:

• 44% have previously invested in a family business; 95% say it’s been a positive experience compared to other investments;
• 76% say the family holds a majority stake in the business; and
• 60% are looking for investments with reasonable risks and reasonable returns, and are focused on long-term capital appreciation.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.