Family Capital – A Valuable Source of Innovation and Finance for Startups

At C5 we have the privilege of partnering with 17 extraordinary families across the US, Europe and the Gulf. Earlier in my career I had the privilege of working with families building exceptional global businesses in Kroll, Fleming Family and Partners (FF & P), Kinnevik, Cranemere and Grosvenor that were formative influences on me as a professional and entrepreneur.

Family capital is a source of finance that is often overlooked by startup founders. Startups often consider their own family and friends, angel investors and venture capital, but forget about family offices. This may be because entrepreneurs do not know how to access them or really understand how family capital is differentiated from other sources of capital and therefore the implications for their business’s growth.

Family-owned businesses make a significant contribution to economic growth. They create the majority of new jobs, not only in Europe, but also in the US. According to a study by the Vermont Business School, in the US alone there are 5.5 million family-owned business which make up 57 percent of GDP. The Harvard Business Review has also found that family-owned businesses can be more enduring than other forms of ownership, including public corporations.

In Europe, the Middle East and Africa, markets which continue to be underserved by the traditional venture capital model, family capital has a particularly important role to play to help scale startups. There are distinct advantages to startup founders using family capital to grow their businesses. Chief among these is the longer-term view that families can take. Their investment approach can span generations, which is necessary when building a business. This longer investment horizon can provide greater advantages than a traditional venture capital firm’s fixed-term investment.

Successful families also have ownership of large operating businesses in which startups can test their new products and services and a global network of contacts. In negotiating the investment into your startup there is often more scope to craft the terms of investment on the basis of a partnership since family capital is not tied to the restrictions and fixed terms of venture capital.

Another strong argument for family capital is that, working with families creates a much richer tapestry in building your own business. There is often a family memory of prior experiences and hard lessons learnt in the family that can be passed across to give startup founders, who are new to the challenges of ownership, better perspective. This is particularly important when those founders begin to create new wealth for their own families, which needs to be preserved to create a generational boon.

The notion of a business as a trust to pass from one generation to the next can often drive innovation in family-owned businesses. Some families like the Stenbecks in Sweden have an exceptional track record of innovation over generations in their businesses. Other families use their networks and convening power to build a venture capital ecosystem in their own countries. A good example is Guglielmo Marzotto, who is nurturing the nascent venture capital sector in Italy. Other prominent figures, such as the Crown Prince of Bahrain, are leading the digital transformation of their country with a forward-looking, cloud-first policy. Families have often used their wealth to innovate for the public good. The 6th Duke of Westminster, for example, who has created the Defence and National Rehabilitation Centre (DNRC) which innovates in technology for the repair of injured people in Britain and looks to meet the productivity and defence challenges of this century.

Most importantly the great family owned business of today show what enduring and impactful results entrepreneurs can achieve by resilience and commitment over generations, changing countries, regions and peoples’ lives for the better.

At C5 our family’s investors are innovating security to create a safer world for everyone.