Only the fittest survive the fierce world of startups. One of the biggest factors that make startups go bust is the lack of capital. Successful capital raising determines what future holds for any startup. For any startup to successfully raise capital, it is important for it to be aware of the different kinds of investors available before it starts seeking funding. One attractive option among these target investors is a family office.
Before delving any further, let’s understand what a family office is.
WHAT IS A FAMILY OFFICE?
A family office is a private wealth management advisory firm that serves ultra-high-net-worth investors.
The way it differs from traditional wealth management shops in that it offers a total outsourced solution to managing the financial and investment side of an affluent individual or family.
Usually, family offices serve just one or a small number of ultra-high-net-worth families. The family’s own wealth is the financial capital of the office.
A significant number of family offices and high-net-worth individuals are looking for exposure to the startup space. Despite COVID-19 shaking the economic world to its core, family offices are taking keen interest in investing in startups across industries. Family offices constantly look at different ways to structure investment and opportunities.
So, what do family offices look for in startups and their founders? What are the factors that influence their decision to invest in startups? Like any other investor, the primary objective of a family office, too, is to make money. So, we are not going to focus on the obvious factors that inspire investment decisions of family offices. Factors like product, market size, valuation, and the rest. We will, however, direct our focus on things beyond numbers that family offices look for in startups, the teams behind them, that shape their decision-making process.
KiwiTech recently invited some brilliant minds from top family offices in the US for a panel discussion on their strategy in investing, portfolio management, and the impact of COVID-19 on their investment theses. They talked about what has made the biggest difference among their successful investments, what moves, entrepreneur traits or tactics have made the biggest difference in their startups being flops or top performers. Following are the most common factors the family offices seek in startup founders and the teams behind them.
Most agreed that grit is one trait that plays a crucial role when deciding to back a startup founder. The founders and their teams behind the startups are going to define the course ahead and they will be the ones that will push these companies one way or the other, and this is where grit and resilience plays an integral part.
Francisco Sacasa, Operating Partner and CFO of Bee Cave Capital, a leading family office based out of Austin, says,
“For us it is like one word – GRIT. We’ve looked at every possible combination, background, industry, and ultimately the number one thing that matters the most is grit.”
Ricardo Taveras, Managing Partner at Taveras Private Holdings, a family office based out of New York City, also believes that grit is a key factor he looks for in startup founders.
“Number one trait we look for is tolerance for pain. So, they have to be able to be hit in the face a few times, and come back and say give me more.”
Everyone agrees that intelligence plays a role in being a successful and productive entrepreneur. Ricardo is of the opinion that IQ and conscientiousness are also important.
“By IQ, I am referring to someone’s ability to learn a lot of complex information very quickly, because the speed at which you move when you have that ability is often faster than those that don’t. When I mean conscientiousness, I am referring to being very thorough. If one has a big processing brain and you can move quickly through a lot of complex info, you can go into a level of thoroughness that lets you understand the depth of the complexity quickly.”
Matt Oguz, CIO of IRIS Family Office, an investment group located in San Francisco Bay Area, always looks for intelligence in the person behind the company he is about to invest into.
“Intelligence must be there. It pays to be smart and maybe pivot or change gears. We try to be very calculated about that and try to quantify these attributes all the time to understand them better.”
This is a tricky one. Rohit Gupta, Partner at GFO Companies, a family office based in Los Angeles and Oklahoma City, rates the likeability of the founder very high.
“I’ll never invest in somebody who I do not like. It’s kind of petty, but I will never invest in somebody who I think is an a**hole. I’ll never invest in someone who treats people bad. It’s just not worth it to me, because whatever bad people make will suck.”
Matt Oguz, however, is not of the same opinion. He says,
“Likeability can be tricky. What we try to do is avoid common biases as we try and make investment decisions. My likings have nothing to do on the returns on investment.”
These three traits will probably affect the investment decision of a family office and will determine how interested or not interested they are in your startup. Startups must always bear in mind that it is not all about numbers in the end when raising capital. Several other factors also play a crucial role in swaying the investors.
KiwiTech has helped hundreds of entrepreneurs connect with investors through its various events involving angel investors, VCs and Family Offices. If you are actively raising seed or growth capital, click here to learn more about our upcoming events!