Raising Capital from Family Offices

Key claims

• The family office world is fragmented and opaque, and many family offices take pride in operating in the shadows, so introductions usually come through intermediaries like accountants, bankers, lawyers and wealth managers.
• Cold outreach rarely works. Better to find the gatekeepers and connectors in a city, and to build relationships land-and-expand style: visit one family office in a region and ask whom else to meet while there.
• Size matters in both directions. A family office behind a $5B+ fortune may not look at anything under $25M, while those with $250M–$1B balance sheets collaborate often and lean on each other’s work.
• Decision-making is inconsistent from one family office to the next, so assume the process will take every available minute, and keep interested-but-not-yet investors on updates.
• A family office with no experience in a strategy is a long shot for the current raise. Keep conversations on business, not family or net worth, and be careful about targeting a family member as the way in.

Notable quotes

• I am often asked by General Partners, which I will refer to as sponsors, for advice about raising money from Family Offices (“FOs”).
• The FO world is fragmented and opaque. Finding and connecting with FOs can be a challenge even for people operating within the ecosystem.
• Operating in the shadows is a point of pride for many FOs, with many having little to no web presence and striving to stay out of the press.
• Intermediaries such as accountants, investment bankers, lawyers, or wealth managers often make introductions if a sponsor can make it through their filters.
• I responded to interesting cold outreach, but fair warning, your rate of success with a cold message will be low.
• Finding the right gatekeepers and connectors in a city can expedite building relationships with the FOs in an area because those individuals likely have access to local groups with several FOs.
• I would approach my own FO networking with a land and expand mindset. Connect with a FO in a geography where you want to build relationships, go to see them, and ask if they have other contacts to meet with while you are in the area.
• Capital creating principals often believe their networks and individual experiences can add value to an investment or give them an edge to underwrite the opportunity.
• A FO with principal net worth of $5B+ might not roll out of bed for a potential investment under $25M and operate independently, but FOs with balance sheets of say $250M-$1B can collaborate frequently because their resources can push them to leverage the connections and work of other FOs.
• Sometimes I have conversations with sponsors who ask questions about targeting large FOs for fundraising when the sponsor has a current need of say $5-$50M of capital. Building relationships with deep-pocketed investors is a wonderful thing to do, but these types of investors need to deploy larger amounts of capital for the investment to move the needle.
• Decision making at FOs is inconsistent with different organizations having different processes and structures for allocating capital. Some FOs can and do move very quickly. Others move at a glacial pace. Those courting FOs as potential capital partners should assume the decision process will take every minute possible but be pleasantly surprised if a commitment is made earlier in the process
• If you find FOs that have interest in your strategy but didn’t invest at that time, make sure to keep them on appropriate investor updates, try to get time with them when you’re in town, and let them know about meaningful milestones.
• Talking to a FO that has no experience investing in that strategy probably means your odds of a commitment for the current opportunity at low because the FO could take years to get comfortable with that kind of opportunity.
• I would discourage sponsors from asking personal questions about the family including topics related to family members and net worth. Keep the conversation focused on the business at hand. FOs are notoriously secret by design.
• One tactic used by sponsors that comes with risk is targeting a family member as their connection to the organization. Based on the 2020 UBS Family Office Survey, only ~50% of family members participate in investment management choices.

Published on the Cowboy Investing blog, whose byline is its pen name.

How it connects

• Family Office
• Fundraising