September 10, 2017
To tap into this growing funding source, network early and often
Your family has a limit on how much it can invest in your company. But for many entrepreneurs, especially those seeking to bring about positive changes in the world, another kind of family is making a valuable difference.
When Joe Muldoon, CEO of FAST BioMedical, was seeking funding for his business nearly a decade ago, one of his first sources came from a family office. At the time, he says, he was under the impression that once the technology was proven, the company would be able to access traditional venture capital. His company focuses on measuring blood volume and kidney function. It just so happened that a family office noticed him and invested in FAST BioMedical before he had to go down the often-thorny venture capital route. Muldoon is grateful. Today, he knows how difficult VC dollars are to procure.
FAST BioMedical, based in Carmel, has found success seeking funds from more traditional sources, including friends and family (the blood-related kind). Securing government grants has helped validate its ideas and fund critical research, while angel investors and venture capitalists have provided capital to keep the company progressing.
Muldoon has also sought and secured funding from Elevate Ventures, which welcomed FAST BioMedical to its family of portfolio companies. But while all of the usual funding sources have made it possible for FAST BioMedical to reach each new milestone, family offices have undoubtedly been critical to the journey.
In pursuit of the next financing round
FAST BioMedical isn’t making a simple widget or offering a service that was easy to scale. The clinical-stage medical technology company focuses on developing a patented technology for quantifying patient metrics that are clinically important, but have been challenging or impossible to measure in the past. It is an expensive endeavor to bring to the marketplace.
By early 2017, the company needed millions more dollars to go toward clinical trials, additional talent to maneuver a highly regulated industry, and expansion of its patent portfolio. When the time came to seek additional financing, the right people happened to be a new family office investment group.
On May 3, 2017, FAST BioMedical announced it had secured $8 million of additional financing. One new investor, F&M Investment Office, provided $5 million of the financing. This financing augments $3 million of grant funding received as a competing renewal award from the National Institute of Diabetes and Digestive and Kidney Diseases at the National Institutes of Health.
“This financing is an important and validating step to continue our progress,” Muldoon said in a company release. “We have already begun adding talent to the team, and are excited about their ability to immediately add value.”
“FAST BioMedical has enormous potential to serve large unmet medical needs with its innovative technology,” a statement from F&M Investment Office said. “We are delighted to partner with them, and see great promise in the ability to favorably impact critical patient care.”
If you’ve never heard of F&M Investment Office, it’s likely because it’s a family office.
What is a family office?
For families whose net worth is at least $250 million, family offices have become a favorite method to protect and preserve assets for future generations. The 2016 EY Family Office Guide estimates at least 10,000 single-family offices exist worldwide, half of which were established over the past 15 years. About 6,000 single-family offices are in the U.S alone. Total assets of the world’s ultra-high net worth (UHNW) individuals were estimated at $5.1 trillion in 2015, according to UBS Group/Pricewaterhouse Coopers.
This can all be good news for high-growth businesses. One of the biggest obstacles holding back technologies like FAST BioMedical from scaling is funding. Regardless of initial capital acquired, there comes a time when the obstacle comes back to money — and the need for more. When a company is considering its options, the family office should be in the mix.
A family office is a corporation established for a high net worth family to manage its investable assets. Family offices will typically manage funds in various asset classes including real estate, fixed income, public equities and private company investments. Often, these are ambitious people with strong ties to the startup and entrepreneurial community, as many of these families generated their wealth as entrepreneurs.
Traditionally, family offices used venture capital funds, private equity and hedge funds to manage their capital investments, but today’s trends show a new opportunity for entrepreneurs. The wealthy are increasingly overseeing their own funds and seeking direct investments. This shift helps them avoid third-party account management fees and allows more control in finding businesses that fit long-term impact investment and wealth-generation strategies.
How do you find a family office?
If you can find one, a family office can be a great source of alternative investment. Family offices tend to be secretive, private, elusive and highly selective. They do not always have offices and are seldom found in a directory. (Your Google search won’t yield good leads.)
Connecting with a family office boils down to years of networking and key referrals. Entrepreneurs should keep this in mind when selecting their board or advisors. Additionally, they should seek out other entrepreneurs who have family office investors.
“Family offices like to invest where other family offices are investing, but it takes years,” Muldoon says. “You have to patiently and persistently earn and work your way in.”
In Muldoon’s experience, finding a family office was all about networking. Through his business experience and relationships, he acquired early investments from family offices. The investments soon proved to be more than just financial. The family offices slowly helped connect Muldoon to more family offices.
What are the benefits of funding from a family office?
As many family offices have personal experience in the industries in which they invest, they can provide a wealth of strategic advice, subject matter expertise and additional networking connections. The resources and connections can be a great asset for a high-potential business.
Muldoon says access to the family office’s network has been a powerful benefit for his company.
“We’ve found their advice to be as valuable as their capital,” Muldoon says. “Their names provide validation throughout the industry network.”
Additionally, family offices tend to focus on the opportunity the investment brings rather than a predetermined exit timeline. The pressure on a company to exit at a specific point in time based on where a venture fund is in its cycle no longer exists in this model.
What do family offices typically look for?
In addition to getting a good financial return, family offices consistently look for impact investments, where their money can support a company seeking to make a socially responsible change in the world. According to the UBS/Campden Wealth Global Family Office Report 2016, 62 percent of family offices are now active or expect to be active in impact investing, and 47 percent believe that impact investing is a more efficient use of funds to achieve social impact than philanthropy. Family offices’ philanthropic nature brings them to ask questions such as, “How many lives can it save?” and “What is the environmental impact?”
Muldoon recalls a representative from one of FAST BioMedical’s family offices telling him, “‘We want an investment that can, one, significantly improve the lives of others and, two, drive an exceptional rate of return on our capital. If you can’t do 1, we don’t care about 2.’ It is pretty inspiring to have people like that as stakeholders, as it is perfectly aligned with the motivation of our team.”
By finding family office investors, Muldoon and the FAST BioMedical team are able to persevere in their vision to innovate medical technology. Like their family office investor, they hope to change the world.