FAMILY OFFICE

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A family office is a a private wealth management structure dedicated to managing a wealthy family's finances and wealth, including investments, real estate assets, taxation, estate planning and other aspects. Family offices are often used by families who have a large amount of assets and are looking for a way to manage them effectively and efficiently. The family office can operate as an independent entity or be managed by a private bank. The services offered by family offices can range from financial and tax advice to asset management, wealth planning and concierge services.

Family offices often invest in a variety of asset classes, including equities, bonds, real estate, private businesses and other types of investments. They may also provide capital to emerging companies and startups in the form of private equity or venture investment. In short, a family office is a private wealth management structure used to manage a wealthy family's finances and wealth. It offers a variety of services, including financial and tax advice, asset management and estate planning, and can invest in a variety of asset classes, including startups and emerging companies.

Advice to an entrepreneur on how to obtain funding from a family office

Here are some tips for entrepreneurs seeking family office financing:

1. Research the family office: research the family office to understand its investment philosophy, approach and investment history. Make sure the family office has an interest in your business sector and is willing to invest in your start-up.
2. Prepare a solid pitch (+): Prepare a solid presentation of your company, including information about your team, product or service, target market and growth plans. Make sure your pitch is engaging and exciting for investors, and that it highlights what makes your company unique.
3. Show your progress (+): family office investors will want to see that your company is progressing and is on the right path to success. Make sure you have some important milestones that you can highlight, such as achievements in sales, users, customers or advances in technology.
4. Communicate your needs for financing (+): clearly communicate how much money you need and how you will use it. It is important to have a detailed plan that demonstrates how the funding will help your business grow and achieve its goals.
5. Maintain a strong relationship: Maintain a good relationship with the family office, even if you don't get funding right away. It is important to keep in touch and keep them informed about your company's progress.
6. Be transparent: Be transparent about the risks and opportunities of your start-up. Make sure investors understand the profit potential, but also the potential risks. Transparency is key to establishing a strong and lasting relationship with the family office.

In summary, to get funding from a family office, it is important to do your research, prepare a solid pitch, show your progress, communicate your funding needs, maintain a good relationship and be transparent about the risks and opportunities of your start-up.

Advantages and disadvantages of family offices 

Family office financing can have several advantages and disadvantages for entrepreneurs compared to other sources of financing.

HERE ARE SOME OF THEM

ADVANTAGES:

1. Personalised financing: By working with a family office, entrepreneurs can obtain customised financing tailored to their specific needs and objectives. Family offices can offer greater flexibility in terms of investment structuring, terms and interest rates.
2. Access to a wide network of contacts: family offices often have a wide network of contacts in the industry and can help entrepreneurs connect with other investors, companies and business partners.
3. Fewer restrictions: compared to other sources of funding, such as venture capital investors, family offices may have fewer restrictions in terms of control and ownership of the company. Family offices may be willing to invest in early stage companies without requiring significant control of the company.
4. Long-term financing: family offices may be willing to invest in companies on a long-term basis, allowing entrepreneurs to focus on the long-term growth of the company.

DISADVANTAGES:

1. Entry requirements: family offices often have high entry requirements, which means that only entrepreneurs with high growth potential and a strong client base can be considered.
2. Lack of diversity: by working with a single family office, entrepreneurs may limit their access to other sources of finance and to a diversity of opinions and perspectives.
3. Performance expectations: family offices expect a significant financial return on their investments. If entrepreneurs cannot meet these expectations, they may lose the financial support of the family office.
4. Conflicts of interest: family offices may have conflicts of interest if they also have interests in other companies in the same industry.

In summary, family office financing can have advantages such as customised financing, access to a wide network of contacts, fewer restrictions and long-term financing. However, it can also have disadvantages such as high entry requirements, lack of diversity, performance expectations and potential conflicts of interest. It is important for entrepreneurs to carefully evaluate these advantages and disadvantages before seeking family office financing.

The familly office is another type of private financing that exists in many countries and is becoming increasingly important as a source of active and accessible financing for entrepreneurs (preferably of the type startups (+)). The family office is a tool for business families to clearly separate business decisions from financial and wealth decisions in order to preserve the wealth already obtained by the family through efficient management.

There are family offices that focus on helping early-stage entrepreneurial projects. They not only contribute money, but also experience and contacts. Small and medium-sized assets are managed by the owners themselves (if they have the time and expertise) or with the help of a financial advisor. However, when it comes to organising a family fortune, issues such as family cohesion come into play. It is at such times that the need for a family office may arise.

When is a family office set up?

In order to set up a family office, it is necessary to have a wealth and financial dimension whose volume is difficult to manage by the family itself. Typical situations in which entrepreneurial families need to create such a company are, for example, after the sale of one of their companies or in the case of people who earn very large sums of money in a very short period of time, whether as a result of an inheritance, a sporting career, a prize, etc. This figure must be self-sufficient and generate its own profitability. The legal structure is that of a limited company, a private bank serving one or more entrepreneurial families.

The family office manages wealth by investing in both financial and non-financial assets: planning, taxation, investment funds, pension plans, property management, etc. The aim is to achieve asset growth through a comprehensive investment strategy. They usually consist of directors, financial advisors, tax specialists and legal experts, preferably independent. The operation of the family office must be based on the investment and risk strategy indicated by the Family Council through the Family Strategic Plan.

Family office functions:

The fundamental objectives of a family office are:

• Preserving wealth from generation to generation by managing heritage as a single unit.
• To achieve tax-efficient asset and financial management.
• To enable the family to make appropriate and informed decisions.

In many cases, it also provides tax, financial and legal advisory services to individual family members. This is one of the differential points that distinguish it from private banking. Serve as a platform for the next generations in the training of how to manage wealth. Organising family governance sessions (Family Council) and joint family activities.

TYPES OF FAMILY OFFICE

SINGLE FAMILY OFFICE (SFO)

It is a company that is for a single family. This means that the professionals who manage the fortune of this family group will do so exclusively for them. According to the report "Single Family Office Survey 2021", prepared by Credit Suisse, this type of SFO has grown considerably in Spain in recent years. Currently, SFOs are set up with more than 150 million euros in assets under management. On average, single family offices support six family members, and a majority 60% works with two generations. A 20% only works with the first generation and a 17% goes up to the third generation.

MULTI-FAMILY OFFICE (MFO)

If the wealth is not large enough to form a family office of its own, the best option is to go for a multi-family office, the cost of which is usually cheaper as there is no exclusive dedication. In this case, these are usually fortunes of between 20 and 150 million euros. This is a little-known type of investor: it is a structure/group that manages the wealth and investments of a family group, whether they are financial, real estate or business investments. The first thing to understand is that it is not an entity dedicated to investing in startups, but only a small part of the assets (at most 10%) is dedicated to high-risk investments... including startups.

Although, like all investors, they strive to support their investee companies, the involvement of this type of actor is much lower than that of an investor. business angel (+)... as it is a more financial investment in search of high capital gains. They usually enter later than a business angel, and invest higher amounts... from 300-500 thousand euros, although many start at one million euros. They are much more serious investments, in which control and supervision mechanisms are established that are tougher than those that are considered when a business angel invests. Some of the best known in Spain are the José Manuel Entrecanales Foundation and Casa Grande Cartagena (Del Pino family).

EXAMPLES TOLD BY THEIR PROTAGONISTS:

Smaller family offices often invest in co-investment in order to be able to diversify holdings in more projects, albeit with smaller amounts. An example of a family office: "I am involved in seven projects. In addition to the contributions of the entrepreneurs, I like to invest alongside other investors because they bring other visions and knowledge to the table. And also, to diversify investments, because it is better to invest, for example, in three projects with 50,000 euros each than in one with 150,000 euros. I get involved in projects that I understand and in which I participate by contributing not only money, but also experience and knowledge. I usually invest between 30,000 and 150,000 euros, with an average of between 50,000 and 60,000 euros per project," explains Jesús de Benito, who invests in projects related to technology and research equipment close to the university environment.

MORE PROJECTS AND LESS MONEY

Another example: "Between 2004 and 2007, which were good years for project development, we participated in up to eight projects. The investment figures were high, between 100,000 and 500,000 euros. From 2007 onwards, that changed and we lowered the figures by one digit. We had a couple of major setbacks and decided to enter into a smaller number of them, with less money and in much earlier and more incipient phases, where our contribution was probably not so much economic as experience and added value. Our investments from then on were between 10,000 and 50,000 euros. We have had 20 investees and now we have six," says Paco Negre, founder of Nero Family, which he manages with his wife.

"We started investing in startups seven years ago, first in projects of other known investors, more like friends and fools. That's how we started to have our first experiences and failures rather than successes. As we struggled and had those setbacks, we learned and professionalised what it means to invest in this type of project. This experience has allowed us to develop a methodology and an investment policy that allows us to receive projects, filter them, structure them, analyse them, present them to an investment committee, etc.," explains Raúl Aznar, founder of the Pandora Lys family, which specialises in investing in projects related to tourism, logistics, health, ecological transport, Internet and mobile technology. Aznar has participated in seven projects and is currently involved in four with investments of around 50,000 euros.

How do family offices invest in startups?

DIRECTLY AND INDIRECTLY

Directly in the capital of start-ups and indirectly, through Private Equity and, fundamentally, Venture Capital funds.
In relation to the direct investment of Family Offices in the innovative ecosystem, the 'Annual Report on Investment Trends in Spain 2021', carried out by the Bankinter Foundation of Innovation, indicates that family businesses invested 49.97 million euros in startups and scaleups in our country last year. Although this investment is still a minority compared to the contribution volumes of Venture Capital and Private Equity, investment by Family Offices has established itself as the fourth source of funding for the Spanish innovative ecosystem in 2021. In addition, the report Family Offices Investing in Venture Capital: Global Trends & Insights 2020, conducted by Silicon Valley Bank based on the contributions of 110 Family Offices globally, highlights that family businesses allocate between 10% of their total investment to Venture Capital funds. Regarding indirect investment, the study 'The Impact of Family Offices in the Iberian Peninsula', prepared by Deloitte and FOMM, highlights that Family Offices devote 18% of their investment to alternative assets, including Private Equity and Venture Capital funds. In 2021, Venture Capital and Private Equity investment in the Spanish innovative ecosystem was €2,127.48 million and €1,670.48 million, respectively.

Increased Family Office investment in Venture Capital

Although the volumes are lower than those of other types of financial assets, such as real estate, studies indicate that Family Offices investment in Venture Capital is increasing every year. This is highlighted in the 'Family Offices Investing in Venture Capital Report', which states that the percentage of Venture Capital operations carried out by Family Offices investment, only during the first half of 2021, has exceeded the total number of operations carried out during the whole of 2020 by three points.

Regarding investment sectors, the study 'Spanish and global perspectives for family and private equity firms', conducted by Deloitte, indicates that Family Offices prioritise their investment in Venture Capital in areas such as Cloud Computing, Software As a Service (SaaS) and CRM, with the preference for these tools being higher than in other countries.

Why do Family Offices invest in Venture Capital?

The study 'The Impact of Family Offices in the Iberian Peninsula' highlights that the high profitability rates of Venture Capital are the main reason for the attraction of Family Offices. Likewise, the investment of family businesses in Venture Capital is based on the need for diversification and the existence of attractive investments. Finally, this type of investment also seeks synergies with the operating company, as well as the identification of new sectors that are aligned with the production or business model of the family business.