While family businesses create more than 70 percent of global GDP, many say they find their fundraising options limited, according to a new KPMG International survey.
The global survey found that 58 percent of family businesses are currently seeking external financing to fund their investment plans, but finding the right strategic investment partner can be challenging.
Private equity funding often requires the entire business to be sold to maximize 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 maximizing their growth potential.
KPMG has identified one possibly underutilized 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.
It is estimated that there are up to 14 million High Net Worth Individuals around the world with around US$53 trillion of wealth.
Survey results show that the top priorities of HNWIs and family owned businesses align, making this underutilization surprising: HNWIs name long-term capital appreciation (37 percent) as their top driver for investment, while family businesses name long-term orientation towards investment returns as their top investor characteristic (23 percent).
“From the survey, education and awareness on the potential benefits of these partnerships have emerged as important first steps to link these two groups,” Christophe Bernard, KPMG’s Global Head of Family Business explained.
The study also reveals that 44 percent of HNWIs have previously invested in a family business and the vast majority (95 percent) say that it has been a positive experience in comparison to their other investments.
More than three-quarters of survey respondents (76 percent) say that the family holds a majority stake in the business.
Meanwhile, 60 percent of HNWIs are looking for investments with reasonable risks and reasonable returns, and are focused on long-term capital appreciation. Both of these traits are well matched by investment in family businesses.
While there are challenges on both sides, the report reveals that both family businesses and HNWIs have an appetite for investment and could prove to be highly compatible partners.