Chances are, you've probably never heard of the "family office" investor, and never seriously contemplated why these family offices might be a potential source of capital for your new startup business. Their lack of fame is for a very good reason – they don't necessarily want to be found, and they often don't even have a website where you can check them out. But if you know the "right" people, you will be able to get a meeting with them.
The concept of the family office investor dates back to the nineteenth century, back when families like the Rockefellers and Carnegie were starting to amass vast amounts of wealth that needed to be preserved and handed down to the next generation. This led to the concept of the family office, which became a sort of one-stop shopping destination for accounting, tax planning, property management, and estate management.
In the modern tech era, family offices are more likely to belong to the families of money managers, hedge funders, and wealthy tech entrepreneurs. What these individuals are looking for is a way to preserve wealth, and also generate double-digit annual returns by bypassing the need to invest in third-party VC funds (where they need to give away 20 percent of the profits and also pay a 2 percent management fee on top!). By some estimates, there are now 3,000 family office investors, with more than half of them started in just the past two decades.
While family office investors make startup investments just like traditional VC firms, there are a few key differences. For example, they tend to have many different timelines. Most VC firms are trying to get in and out of an investment in less than five years. But family office investors have the privilege of taking a much longer view of the matter (remember, they are investing for future generations).
Moreover, family office investors have much greater freedom to invest in a wide range of startup companies and industries. Most VC firms like to specialize in a single type of company or a single type of industry. But that's not the case with family office investors, which prefer greater diversification in their investment strategy.
Finally, family office investors tend to place much more emphasis on personal relationships. VC firms love to invest with people they feel comfortable with, too, but they also run all the numbers and won't invest in a deal if it can't generate the types of returns they are looking for in a transaction. In contrast, family office investors might be willing to take more of a risk on the right kind of entrepreneur with the right type of idea.
The hardest part about lining up an investment from these family office investors is simply getting past the initial gatekeeper. You simply do not cold call these investors, asking for a meeting. Instead, you are introduced to these investors via a personal introduction of someone who already knows you. But once you've made the right introduction, that's when you can unlock a valuable source of patient capital that can help to grow your new venture.