High net worth individuals (HNWIs) see family businesses as a good match for them according to the results from KPMG’s Global Survey – Financing Family Business Growth through Individual Investors, the results of which were released late in 2014. Nearly half said that they have invested in at least one family business, often in a personal capacity. Encouragingly, the vast majority say their experience of doing so was positive. Many HNWIs are attracted to family businesses. When given a choice between investing directly in family or non-family businesses, the highest proportion (39%) of HNWIs prefer to invest in family businesses, while only 25% prefer non-family businesses. A further 36% had no preference.
The survey found that 62% of family business respondents in Australia were seeking external finance, so opportunities are very much open for connecting with HNWIs. All family business respondents agreed that HNWIs are watchful investors who would not panic if the company faced difficulty. The CEO of a South Australian company agreed “HNWIs are generally patient in their investments and do not believe in getting too involved with the company or project they are funding”.
Australian HNWIs, on the other hand, have had fairly limited experience with family businesses, according to the survey. Less than a quarter of respondents had previously invested in a family owned business. However, those investors that had taken the plunge had universally positive experiences. “Family businesses are like a long-term growth strategy for our business, earnings from the investment has been profitable always,” said one HNWI.
The importance of longevity
The reasons for investing in a family business are well aligned with the importance families place on the longevity of their business and the idea that they are managing a legacy for future family members, as these are the factors that appear to give HNWIs comfort and the potential for good, stable returns. As one entrepreneur noted: “I like family businesses that have maintained continuity over the years as they are likely to have developed a secret for business success and have an advantage in the market.”
Another HNWI added: “I am in favour of family businesses as they are creative and many have proved their worth by surviving previous economic storms to remain powerful forces in their sector.”
Stability of family businesses
“I would always like and want to invest in a family-run business because they have more stability in the market. A family business that has been running for generations will always grow, and also increase investments from profits. A family business is not likely to fail as most of these businesses are established to increase the wealth of the family,” another entrepreneur stated.
This attraction is reflected in the finding that nearly half (44%) of HNWIs have previously invested directly in a family business, with more than three-quarters of these having invested in one or two family businesses. Nearly a quarter (24%) are serial family business investors and have invested in three or more. Another finding of the survey is that HNWIs are generally very happy with their investments in family businesses, so the creation and renewal of such relationships moving into the future is looking bright. The overwhelming majority (95%) of the HNWIs canvassed as part of the survey who have invested in a family business view the experience positively in comparison to their other investments, with 55% saying their experience has been very positive. This is reflected across different regions, with the vast majority of HNWIs in both developed and emerging markets rating their experiences positively.
Personal engagement is high
Comments from respondents suggest that this positive experience can be attributed to the level of personal engagement the family has with a HNWI investor, as well as the alignment of interest in furthering business goals. “The overall experience was positive,” says one HNWI. “The specialty of family-run businesses is that they are long-term oriented and for these businesses, reputation is above all, so our money invested has sure returns in the long-run.” Another survey respondent said ”[It was] very positive, we’ve had better deals with family businesses, they are pretty open in their views and we’ve not experienced any sort of conflict.”
“It was a great experience as the family business owners are very open and maintain a good relationship with all their contacts,” comments another “They never fail to give importance to their investors, which encourages more investment.”