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TP Bites: Family offices – boosting deal flow

In this podcast, Jordan Greenaway and Luke Thompson discuss a new research note published by Transmission Private on family office deal flow.

photo of st paul’s cathedral in the city of london

In Q4 2020, Transmission Private conducted research into what investees, co-investors, and others were looking for from private investors. As private investment activity continues to increase, so does competition for the most lucrative deals. Building a strong reputation as a family office or private investor will give you an edge in accessing the most competitive investment deals.

If you are interested in reading the research this discussion is based on, the full report can be downloaded here.

Transcript

Jordan: So Luke, another bit of research has landed on our desks again, this time looking at the importance of reputation in the context of deal flow. In particular, this time we looked at how reputations, and strong reputations, can ensure that family offices and investors get access to the best deals. Anything jump out to you on this one?

Luke: Yes, it did, actually. I think there are some very interesting results. There’s 15 factors that we looked at. If you look at the top five factors that stakeholders find most important when looking for a potential investor, they’re all reputation and communication issues. So I think the biggest finding for me is if you’re a family office, or even a private investor, how you communicate with potential investees, what sort of website you've got online about you, whether you've got a printed brochure, these things actually are more important in many ways than a lot of other factors. I think this probably shines a spotlight on those issues that I think a lot of people would have expected to be further down the list actually.

Jordan: Talking about these top five, we’ve got number one: business track record, showcasing you’ve got a strong track record of investing in good businesses. Number two: You’ve got strong ethics.

Now, much further down the list are access to financial resources, which you would expect, I think, or most people would guess is number one. Even further down the list was access to business advisors and a good network.

I think there’s a general sense out there that when you’re investing in businesses, when you’re seeking to strike deals, what you go big on is: “I've got the money. I've got the contacts.”. Now, of course, they're important, but what this shows is that when an investee company or a co- investor is looking to invest with somebody else, they're looking at, “Is this a credible person? Is this a person I want to do business with and is this a person I want to be publicly associated with? Is this a person with a mission, a purpose, and strong ethics that will reinforce my own reputation?”

When I was reading through these results, it occurred to me that in the reputation and PR world, we talk a lot about reputation risks — the potential damage of a story, or the potential damage of being attacked on social media. We probably don’t put as much focus on opportunities, on the positives of reputation. You could say, on the power of reputation.

If you’re an investor, or if you’re a family office, it’s not only about avoiding the bad stuff. It’s ensuring you're at the front of the queue, and I don’t think we talk about that enough.

Family office websites enhance credibility

Luke: Yes. I think it almost comes down to business marketing and communications because I think you could apply some of these rules if you’re a normal business rather than just a family office or an investment office, but it’s about a competitive edge, isn’t it?

I know something that you’ve put here in the research is about creating a clear blue water between yourself and your investment strategy against all of your competitors in the market. I suppose it also comes down to your investment strategy as well. If you want to make lots of investments, and you’re competing for the big deals against your competitors, what are the things that are going to make you stand out from the crowd?

Looking practically, if you’ve got a family office website, and you know that investees care about ethics, think about what sort of content you want to put on that website in order to project that to that audience. If you’re the only one doing it in a handful of family offices that investees are looking at, then that’s obviously going to satisfy their interest in that sort of content.

Jordan: I think you had a really good point there, Luke. And that is that family offices aren’t just competing amongst themselves. If you want to access the best deals, you’re competing against the big venture capitalists, you’re competing against the big private equity firms, and they’ve been investing millions in their reputation and branding for years. So when you see one of these big PE firms acquiring a huge industrial asset that you think, ”I could do a better job at managing and turning that around,” or when you see a big VC company access the latest digital tech company and think, “Why can’t I get into that?” It’s because these guys understand how it works.

They understand that if you’re a company, and you’re a good company, and you’re making an investment, you’ve got a choice. You can go for the company whose brand you recognise, and you as a company want to be associated with, or you can go for an unknown family office with no brand awareness — and because nobody knows about it, it isn’t a stamp of credibility on your own company. They’re going to choose the big guy every day of the week.

Family offices are so far behind on this because there’s an instinctive reticence about communicating or putting more information out there.

Luke: Do you think that’s because they are by nature family owned and family run? Maybe that caution and pessimism comes from the family. They don’t want to put too much information about themselves online, or they don’t want to be seen to be promoting themselves online or even offline in the media. That reticence is obviously holding them back against those bigger financial institutions.

Digital profiles: Business has evolved

Jordan: I definitely think that’s a factor, but I personally think there’s another factor as well — and that is in the 1930s, 40s, 50s, probably all the way up to the 1980s, business was done over the phone. Business was done exclusively on personal networks. The game has changed, communication has changed. Deals aren’t made now solely on the basis of personal relationships and contacts. Because now, in this globalised world, there are deals all around the world and you can’t know everyone. So you need to have a strong shop window that showcases your goods, showcases your reputation. And the best at this were the VCs. Because they’re based in San Francisco, they see these trends in advance of them happening and they get on with it.

The family offices who are run by individuals — who were probably most comfortable in the 1980s and the 1990s doing deals over the phone — haven’t realised that the world has changed.

Luke: Let me ask you a question. Do you feel like the UK family office market is in last position? Shall we say, in the relegation zone? If you look at European family offices, US family offices, I think there just seems to be a general perception or a general feeling that UK family offices just seem to be more entrenched in their ways in many senses. And actually, if you go to the US the family offices are much better at communicating to investees and to various different circles than we are here in the UK.

Jordan: Definitely. I wouldn’t say we’re in the relegation zone, but we’re definitely in the middle of the league. At the top are the US guys who are quite forward thinking on this, but so are the Asian family offices.

Now let me tell you why I think the Asian family offices are number two, or number three. That’s because they haven’t got this heritage of conducting business over the phone. By and large, that family wealth in Asia was created over the last ten years, so they haven’t got established ways of doing it. They’ve come to the market, and then they’ve learnt how do we do it. So they haven’t got established ways that they have to re-evolve, change, or adapt. Whereas the guys in the UK do because that wealth might go back 200 years or so. And the way of doing business 200 years ago — the way of doing business five years ago — is not the way that business is done today.

I want to add something else to this as well. The other thing that really surprised me is, of course, the top five rule about comms. The most important thing that investee companies are looking for is a family office that communicates its track record, has strong values, has a respected public profile, and shows some enthusiasm for your business.

Number two is most interesting to me. That’s ethics and values — because I think there is a sense that people believe, or they have at the back of their mind even if they don’t quite say it, that ultimately business is business and it’s dog eat dog. The best terms win, the best amount of money, the best offer wins.

No, all wrong. People want to associate themselves with credible operators who have some mission or values in the world that they want to align themselves with. That was really interesting to me.

Luke: I completely agree. I think maybe that’s also down to a shift in attitudes over the generations. A lot of new businesses tend to be run by millennials or people who are under the age of 40, although not in all cases, and yet the family offices might be run by the principal of the family who’s perhaps 60+.

Instinctively if you did business in a different generation, you might have thought that those kinds of ethical issues aren’t as important. But In terms of key client takeaways, often it’s not that family offices don’t have any ethical credentials at all, it’s the fact that they’re so reticent and hesitant to communicate them in the first place. This doesn’t mean going on the front page of a newspaper, or doing an interview with the founder in a magazine. This is sometimes just about putting that type of content on the website for people to see when they’re making those decisions on investments. It’s not about creating something or plucking something out of thin air. It’s often just about being a bit more sophisticated in the way you communicate what you’re already doing.

Jordan: You’ve reminded me of something that I said, I think, sometime last year. I was looking through the papers and we suddenly saw this big wave of ESG coverage. Everyone was in ESG, the pension funds were in ESG, the big investment managers were in ESG. And we said between ourselves, family offices have been doing ESG for not just generations, they’ve been doing it for centuries but nobody knows about it — they were the principal wave of investors going into ESG. But family offices have behaved too much like a stage with a closed curtain. They’ve been doing all this fantastic activity behind the curtain, yet nobody can see it. You have to do it slowly, and cautiously, but opening that curtain and showcase to the world some of that good work.

So, let’s say I’m a family office. I’ve come away with this core message that you need to communicate more, it needs to be the right messages, and you need to hit the right tones. How do I go about doing that?

Reputational recommendations: Communicating the right messages

Luke: I think first and foremost, you need a website. You’d be surprised the number of family offices that are based in the UK who don’t have websites. Maybe you’ve got a family office that isn’t particularly proactive in the way in which it’s seeking an investment and therefore maybe not having a website’s fine — although I’d probably still recommend to have one.

But if you’re out there in the market, you’re looking for investments, you want people to call you as well and say, “Look, I've got this great opportunity.” The first thing that you need, like any business really, is you need some kind of shop window online. That’s the foundation to anything else.

On top of that, I would say doing some strategic PR, having a brochure. I think a lot of people disregard brochures. They see them as only suitable for big publicly listed companies, but I think they’re suitable for privately owned family businesses as well. A family office website first and foremost, and anything on top of that I’d say is an extra. But think about PR, think about online presence, and think about building up relationships using offline material as well.

Jordan: Completely agree and I would put it into two stages. Stage one: determine your message. The first thing you have to do is sit around the table with your CEO, the principal of your family office, the family members, and determine what you want to invest in, what your core messages is. Companies want to see alignment, they want to see family offices who are aligned with them. Set your message, then sit down and work out how you’re going to communicate that.

Now, I would say a family office website is essential for every family office, but you may not feel that. That’s completely fine, but you need to find mechanisms to communicate, be they online or offline.

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To discuss your needs on a discreet basis, please call us on +44 (0) 207 556 1040 or email enquiry@transmission-private.com.

Transmission Private publishes a monthly newsletter that tracks the future of reputation management for private clients.

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Transmission Private publishes a monthly newsletter that tracks the future of reputation management for private clients.

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Transmission Private publishes a monthly newsletter that tracks the future of reputation management for private clients.