It’s true that many private companies would gladly accept significant investment from a venture capitalist. However, there is a new trend emerging among wealthy investors that goes against the norm.
Increasingly, private companies are turning to private investors and family office wealth to fund their businesses. So what’s behind this trend of investing in private companies?
What is Family Office Wealth?
The origin of most family office wealth can be traced back to a specific successful entrepreneur whose descendants have successfully protected and grown the family business and/or assets to the point of hiring investment, legal, estate and tax experts to help them preserve and grow the family fortune. Usually while keeping true to a meaningful altruistic family legacy.
What is Private Equity?
Private equity is nothing new, simply put, one invests in an entity in exchange for equity in same, but recently it’s become more common as investors and family office wealth seek the asset class from charitable foundations, pension funds, sovereign wealth funds, and large endowment funds.
Wealthy private investors and family offices want the same kind of exposure these funds get for their own portfolios. This new demand has led to several private equity groups quickly raising significant amounts of money, resulting in more money to make these kinds of deals.
Where will it go from here?
This trend is likely to continue as investors and family office wealth seek opportunities that make sense in terms of risk and return. The alignment of private equity, private companies, and family office wealth can form a powerful team of talent and networks working in unison towards a mutually beneficial outcome. Particularly when the actual enterprise being invested in does not garner interest from traditional investment sources.
Historically, private equity deals have performed better than most other asset classes, while usually carrying less risk than the public stock market. Another attractive aspect to these opportunities is familiarity. Many private investors and original sources of family office wealth were entrepreneurs themselves, so investing directly in private companies is a natural fit. They already understand the challenges and risks associated with the growth of an early stage startup.
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