4 min read
With the rise of impact investing in recent years, many high net worth individuals are increasingly aware of the pressing demand for impact investing capital to alleviate social issues. This has led to the surge in family offices and angel investing to cater to the demand. However, family offices and angel investors often face teething issues when starting out.
At the AVPN Virtual Conference 2020, leading family offices and angel investors discussed how they are maximising social impact. Mette Ekeroth, General Manager at the North-East Family Office, however, cautioned that the asset owner landscape is very diverse and an individual’s investor work should not be a blueprint for the rest, saying “If you’ve met one family office, you’ve met one family office”.
What is a family office?
A family office is a privately held company that handles investment management and wealth management for an ultra-high net worth wealthy family, generally one with over $100 million in investable assets, with the goal being to effectively grow and transfer wealth across generations.
How are leading family offices maximising impact?
To maximise impact, family offices need to understand their concerns, domain knowledge, resources and approaches to contribute to the field.It is also crucial to start off small with a concentrated investment before eventually building a portfolio of investees.
To quote Tony Yeung, CEO of Peterson Holdings, “Know yourself, know your family, know what your objectives are and how much time and resources you wish to spend on them”.
Tony Yeung also emphasised the need to walk the talk and lead by example by making changes to the office operations to be sustainable. While it is important to have objectives, it is crucial to not be carried away with lofty ambitions. Instead, set clear and measured expectations.
Lastly, many people also tend to see conventional investing and social impact on different poles. Asset owners, however, should consider aligning their full portfolio with their values, leveraging various asset classes to achieve different goals.
Besides through family offices, high net-worth individuals can also engage in impact investing through angel investing.
What is angel investing?
Traditional financial methods such as borrowing from financial institutions require strict requirements – such as a business having a sustainable business model, healthy financial metric or assets to offer as collateral.
However, businesses in the nascent stages of development are unlikely to meet any of the above requirements. Often, enterprises at such early stages of development are only armed with the business idea they have and a passionate team. Financial institutions are thus unlikely to be willing to lend to these businesses due to the high risk involved.
This is where angel investing comes into the picture. Angel investing is the process where an angel investor (usually high net worth individual) provides funding to small start-ups and entrepreneurs in the early stages of development in exchange for a part of ownership equity in the company. Angel investors can thus play a role by plugging the institutional funding gap.
How are leading angel investors maximising impact?
To maximise impact as an angel investor, it is important to find a community with similar values and goals early in the investment journey. For example, as David Soukhasing mentioned, ANGIN is the first and largest structured investment network in Indonesia. ANGIN provides high-net-worth individuals in Indonesia the opportunity to pool together resources to engage in early stage investments and mentoring. By joining an established investment network, angel investors are able to get access to credible and quality deal flow and seek syndicated deals with like-minded investors.
As Jennifer Viloria, Founder and CEO of IISLA Ventures mentioned, “I go through length by connecting my network, giving them capital and mentorship. I don’t do it passively and expect my capital to come back to me”. IISLA Ventures bridges the right capital to businesses that have a mission to improve and transform the lives of people in rural communities whilst sustainably protecting and preserving the environment.
Indeed, besides providing capital, it is also important for the angel investor to provide mentoring and networking opportunities to maximise the impact. By taking a hands-on approach, founders would be able to relate to the angel investor better and align their goals. The networking opportunity would also provide the start-ups with the opportunity to meet potential business partners and scale faster.