 "High-net-worth individuals eye family businesses for investment")
High-net-worth individuals (HNWIs) in India are increasingly showing interest in investing directly in family businesses, which have traditionally looked at banks for their funding requirements, according to a new KPMG study. A new KPMG International survey has found that 58% of family businesses globally are currently seeking external financing to fund their investment plans, but finding the right strategic investment partner can be challenging.
“In India, family businesses see banks as their chief source of funding. Nine out of the 10 respondents interviewed, were upbeat about bank financing. There is greater participation and investments by way of crowd funding, angel and venture funding and high net-worth individual funding for family businesses,” said KPMG in a press release.
KPMG in association with Mergermarket, surveyed 125 family businesses globally about the types of investment they require, their investors of choice and their previous experience of receiving investment from HNWIs or other family businesses. In addition, 125 HNWIs were surveyed about their investment strategy and how this might align with family businesses.
In India, the reliance on bank financing is probably due to the fact only a fifth of respondents have obtained financing from HNWIs. Those who have done so rated their experience as generally positive. One of the main obstacle appears to be the perceived level of executive involvement from HNWI investors - 8 out of 10 said HNWIs would interfere with the management.
In India, the future for families and HNWIs working together looks bright. Eight out of 10 HNWIs said they were interested in investing directly in family businesses.
“Building trust and transparency will significantly change the way HNWIs and family business collaborate to build strong businesses of the future. Promoters have to overcome the perception about HNI Investor interference in business and be open to constructive challenge and better transparency. Family business will benefit from HNW investors who are more amenable to temporary blips in financial performance and open to medium to long term support,” said the KPMG press release.
The global perpestive
While family businesses create more than 70% of global GDP many say they find their fundraising options limited, says the KPMG International survey.
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.
KPMG has identified one possibly underutilised route for investment with the involvement of 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 $53 trillion of wealth. Survey results show that the top priorities of HNWIs and family owned businesses align, making this underutilisation surprising: HNWIs name long-term capital appreciation (37%) as their top driver for investment, while family businesses name long-term orientation towards investment returns as their top investor characteristic (23%).
“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. By breaking down some of these barriers, KPMG’s Family Business professionals can help clients to build better business partnerships, encouraging increased collaboration between these two groups across the globe for their mutual benefits,” said Christophe Bernard, KPMG’s Global Head of Family Business.
While there are challenges on both sides, ‘Family matters: Financing family business growth through individual investors’ reveals that both family businesses and HNWIs have an appetite for investment and could prove to be highly compatible partners.
“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. Wealthmonitor is proud to have opened the doors to this highly sought after segment of the market,” explained Florian Pixner, Managing Director EMEA of Wealthmonitor, part of the Mergermarket Group.
Other key findings of the survey include:
“In India, family businesses see banks as their chief source of funding. Nine out of the 10 respondents interviewed, were upbeat about bank financing. There is greater participation and investments by way of crowd funding, angel and venture funding and high net-worth individual funding for family businesses,” said KPMG in a press release.
KPMG in association with Mergermarket, surveyed 125 family businesses globally about the types of investment they require, their investors of choice and their previous experience of receiving investment from HNWIs or other family businesses. In addition, 125 HNWIs were surveyed about their investment strategy and how this might align with family businesses.
In India, the reliance on bank financing is probably due to the fact only a fifth of respondents have obtained financing from HNWIs. Those who have done so rated their experience as generally positive. One of the main obstacle appears to be the perceived level of executive involvement from HNWI investors - 8 out of 10 said HNWIs would interfere with the management.
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In India, the future for families and HNWIs working together looks bright. Eight out of 10 HNWIs said they were interested in investing directly in family businesses.
“Building trust and transparency will significantly change the way HNWIs and family business collaborate to build strong businesses of the future. Promoters have to overcome the perception about HNI Investor interference in business and be open to constructive challenge and better transparency. Family business will benefit from HNW investors who are more amenable to temporary blips in financial performance and open to medium to long term support,” said the KPMG press release.
The global perpestive
While family businesses create more than 70% of global GDP many say they find their fundraising options limited, says the KPMG International survey.
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.
KPMG has identified one possibly underutilised route for investment with the involvement of 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 $53 trillion of wealth. Survey results show that the top priorities of HNWIs and family owned businesses align, making this underutilisation surprising: HNWIs name long-term capital appreciation (37%) as their top driver for investment, while family businesses name long-term orientation towards investment returns as their top investor characteristic (23%).
“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. By breaking down some of these barriers, KPMG’s Family Business professionals can help clients to build better business partnerships, encouraging increased collaboration between these two groups across the globe for their mutual benefits,” said Christophe Bernard, KPMG’s Global Head of Family Business.
While there are challenges on both sides, ‘Family matters: Financing family business growth through individual investors’ reveals that both family businesses and HNWIs have an appetite for investment and could prove to be highly compatible partners.
“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. Wealthmonitor is proud to have opened the doors to this highly sought after segment of the market,” explained Florian Pixner, Managing Director EMEA of Wealthmonitor, part of the Mergermarket Group.
Other key findings of the survey include:
- 44% of HNWIs have previously invested in a family business and the vast majority (95%) say that it has been a positive experience in comparison to their other investments
- More than three-quarters of survey respondents (76%) say that the family holds a majority stake in the business
- 60% 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