Information a Family Office Should be Willing to Share to Help a Startup Make an Informed Decision

By George Likourezos, Esq.

When a family office is being considered as an investor by a startup, it should be transparent and willing to share critical information to help the startup make an informed decision. The key areas family offices should be open about include:

1. Investment Track Record

• Past Investments: Family offices should share details about their previous investments in startups, including successful exits and any failures. This helps the startup evaluate the office’s experience with early-stage companies and their understanding of startup dynamics.
• Sector Experience: Providing information on industries or sectors they have focused on will help the startup determine whether the family office has relevant expertise.

2. Investment Philosophy and Goals

• Investment Strategy: The family office should clarify its overall investment strategy—whether it prefers high-growth tech startups, more conservative businesses, or specific industries. This helps the startup understand if there’s a strategic fit.
• Risk Tolerance: Startups should know the family office’s approach to risk and whether they are patient investors willing to ride out the ups and downs typical in early-stage businesses.
• Long-Term Vision: It’s essential for startups to know whether the family office is focused on long-term growth or if they expect quicker returns, as this can influence the company’s decision-making and exit strategy.

3. Capital Availability and Commitment

• Capital Structure: The family office should disclose how much capital they are willing to invest both initially and in follow-on rounds. It’s important for startups to understand whether the family office can support them through future funding rounds.
• Liquidity Concerns: Some family offices may have liquidity constraints or limitations on how quickly they can deploy capital, so they should be upfront about any potential delays or restrictions on funds.

4. Value Beyond Capital

• Strategic Guidance: Startups should ask what value the family office can provide beyond financial capital. Family offices should share how they can contribute through mentorship, operational expertise, or industry connections.
• Network Access: Family offices often have extensive networks that can be valuable to startups. They should be transparent about how they are willing to leverage these connections to benefit the company.
• Portfolio Synergies: If the family office has other investments that could complement the startup’s business (e.g., potential partners, customers, or vendors), they should disclose how they could facilitate such relationships.

5. Governance and Control Expectations

• Decision-Making Influence: The family office should be upfront about any governance roles they seek, such as board seats or veto rights. Startups need to understand how much control or influence the family office expects to have over business operations and major decisions.
• Reporting Requirements: Family offices should clarify the level of financial or operational reporting they expect from the startup. Startups need to be aware of how often they will need to share updates or financial data.

6. Time Horizon and Exit Expectations

• Investment Timeframe: Family offices should communicate their expected investment horizon. Some may have a longer-term focus, while others may seek liquidity sooner. Startups should understand these expectations to align their own growth plans.
• Exit Strategy: It’s important for the family office to disclose their exit strategy, including whether they typically seek acquisitions, IPOs, or other forms of liquidity. Aligning exit goals is crucial to avoid future conflicts.

7. Reputation and Ethical Practices

• Reputation: Family offices should be willing to share references or allow the startup to conduct reference checks on them with other portfolio companies or industry peers.
• Ethical Practices: Startups may want to ensure that the family office operates with integrity and aligns with their values, especially if they have particular concerns about corporate governance or ethical business practices.

8. Legal and Tax Structure

• Investment Vehicle Structure: Family offices often invest through complex structures like trusts, foundations, or holding companies. They should disclose how they intend to structure the investment and any potential tax or legal implications for the startup.
• Legal Obligations: Any unique legal requirements or stipulations that come with accepting investment from a family office should be clearly communicated, such as geographic restrictions or specific legal agreements.

By sharing this information, family offices help build trust and ensure that both sides have a clear understanding of the investment relationship, reducing the likelihood of conflicts or misaligned expectations down the road.  The law firm of Carter, DeLuca & Farrell LLP can represent and guide family offices and other investors to ensure the above information is provided to the startups in a timely manner to ensure long-term positive and healthy relationships between the family offices and the startups after the investment is made. The attorneys at Carter DeLuca also represent startups in protecting their intellectual property, such as their proprietary technologies via patents, their brands and logos via trademarks, their software and websites via copyrights, and their trade secrets.

For a free consultation, in establishing procedures for providing critical information to startups during the due diligence process and other guidance, which is made available through Spotlight Family Office Group, please contact us at Info@SpotlightFamilyOffice.com.