More than half of the family businesses across the world are currently looking for external funding to support their growth plans, as they find it difficult to fund their projects through traditional bank loans, as per a new study by KPMG International.
This is good news for private equity and venture capital funds which are seen as the preferred source of external funding. However, they may have to compete with high-net-worth individuals (HNWIs) who are expected to play a vital role to extend funding to the family-owned businesses since many of them have family business experience as well as significant investment capital.
There are up to 14 million HNWIs around the world with around $53 trillion of wealth and 44 per cent of HNWIs have previous experience of investing in family-owned businesses, according to the survey. While there are challenges on both sides, the survey shows that both family businesses and HNWIs have an appetite for investment and could prove to be highly compatible partners.
The top priorities of HNWIs and family businesses align, making this under-utilisation surprising – HNWIs name long-term capital appreciation (37 per cent) as their top driver for investment, while family businesses name long-term orientation towards investment returns as their top investor characteristic (23 per cent).
On the other side, the survey reveals that family businesses in India look at banks as their main source of funding as of the 10 respondents interviewed by KPMG, nine were upbeat about bank financing.
However, the survey also shows that eight of 10 HNWIs have evinced interest in investing directly into the family businesses.
“With its rise to the world’s third-largest economy, India is poised for growth and reform and with more than 5 million family businesses the country offers a significant opportunity for investors. HNWIs seem keen to partner with businesses to help shape their future. If these two parties can find a way to join, the next decade will be very exciting,” Sanjay Aggarwal, Partner, Head of Family Business, KPMG in India, said in the report.
KPMG teamed up with Mergermarket and surveyed 125 family businesses about the types of investment they require, their investors of choice and their previous experience of receiving investment from HNWIs or other family businesses.
Around 125 HNWIs were surveyed about their investment strategy and how this might align with family businesses. Respondents were based across 29 countries worldwide, covering a total of 82.4 per cent of global GDP.
(Edited by Joby Puthuparampil Johnson)