HNW Individuals Are Surprisingly Under-Used As Source Of Family Business Funding - Study

Tom Burroughes

10 September 2014

The ranks of high net worth individuals around the world are a surprisingly under-used source of funding for family businesses currently struggling to get external funding, suggesting a lack of awareness of the benefits to both sides, a survey shows.

Some 58 per cent of such firms are seeking funding but are challenged in obtaining the right strategic investment partner, it said.

KPMG International, in association with Mergermarket surveyed 125 family businesses about the types of investment they require, their investors of choice and their previous experience of receiving investment from high net worth individuals or other family businesses. In addition, 125 HNWIs were surveyed about their investment strategy and how this might align with family businesses.

A possible and underused route is the world’s population of 14 million HNW individuals, many of whom have family business experience, and capital. In total, they hold around $53 trillion in wealth. As such persons often have long-term investment horizons, their lack of involvement in providing funding for family firms is surprising, the organisation said.

“From the survey, education and awareness on the potential benefits of these partnerships have emerged as important first steps to link these two groups. This report has revealed some important misconceptions on the sides of both family members and HNWIs,” Christophe Bernard, KPMG’s Global Head of Family Business, said.

Among the findings were that 44 per cent of HNW individuals have previously invested in a family business and 95 per cent say that it has been a positive experience in comparison to their other investments; 76 per cent of respondents say that the family holds a majority stake in the business; 60 per cent of respondents seek investments with reasonable risks and reasonable returns, and are focused on long-term capital appreciation.

“The fascinating results distil the essence of what potential HNWI investors look for, and their value to family businesses. Having interviewed the entrepreneurs directly, we really dived into the core of the subject matter without distorting what HNWIs expect and how they operate,” said Florian Pixner, managing director EMEA of Wealthmonitor, part of the Mergermarket Group.