Family business: Financing growth through individual investors

BY ALAN BARR - JUNE 19, 2015

A recent KPMG International survey has found that 58% of family businesses are currently seeking external financing to fund their investment plans, but are finding the right strategic investment partner challenging.

While family businesses create more than 70% of global GDP, many say they find their fundraising options limited.

Private Equity funding often requires the entire business to be sold to maximise value in the event of an exit, and corporate strategic partners often see any investment as part of a longer-term plan to secure full control. As a result of these limitations, many family businesses may not be maximising their growth potential.

The survey revealed the top three needs of a family business when it comes to financing are; to retain majority ownership, recognising the importance of external influence and the value of independent board members, and that expansion is important in both the short term and long term.

KPMG has identified one possibly underutilised route for investment with the involvement of High-Net-Worth Individuals (HNWIs), many of which have family business experience as well as significant investment capital.

The overwhelming majority (92%) of family businesses canvassed in KPMG’s 2014 Global Family Business Survey that have attracted HNWI funding, called their experience positive in comparison with receiving financing from other sources.

“We found that relations between family businesses and HNWIs in South Africa are exceptionally strong,” Craig Steven-Jennings Partner in KPMG in South Africa, said.

“Four out of five family businesses have already obtained direct investment from HNWIs – and all of them were positive about the experience.”

The survey also found that family firms, in South Africa, were not just looking for a silent partner. All respondents were prepared for investors to offer advice and expertise – even offering a seat in the boardroom in one case.

“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 explained.