How can you negotiate with family offices as a PE stakeholder?

The #1 biggest mistake of pitching family offices is using the same pitch you use for private equity firms. The institutional investors have one thing in common: they have access to a lot of money. Pretty much everything else, however, is different. Among other items, this includes time horizon, underwriting criteria ("Trust, trust, trust" as Jason Barnes mentioned in his contribution), and decision-making process. Your materials must reflect these differences to be effective. Remember also that each family office is different. Each family office has a different heritage and story, so each family office has a different values and motivations. Be sure to learn this heritage and these stories from close contacts before you pitch.

Although I have worked with and represented family offices for over 20 years, I was taught a crucial lesson early on by a good friend in the investment business who married into a multi-billion dollar family. He said that the three most important underwriting criteria for the family were, Trust, Trust, and Trust. Although offices will use technical tools and professionals to get through investment underwriting, by and large they rely on their relationships and their trust in those relationships. If you are seeking long-term capital from a family office, then you must understand that family, its goals, whether for profit or not. Take time to get to "know" the office and its personnel and the responsibilities and expectations placed on them.

Understanding their motivations is vital, and building a relationship based on transparency and mutual respect is equally important. When negotiating with family offices, emphasize the unique aspects of your PE firm that cater to their long-term vision, such as your approach to risk management, track record of stability and growth, and alignment with their values. Remember, for family offices, it's not just about the numbers; it's about finding a partner who understands their legacy and can contribute to its growth and preservation.

I agree, customizing your pitch to resonate with their distinct values, vision, and pursuits is paramount.They have the money, so they have the advantage. So it's you duty to find a win win situation.

In general the whole private equity game is built on relationships. People feel comfortable with people they know and have done research on over time. Family offices are no different.

Negotiating terms with a family office can be a daunting task for a number of reasons, in many cases related to a family's lack of familiarity with an asset class or what is "market" for similar investments. I coach clients to prepare very clear but concise investment proposals that are not designed to "sell" the family but, instead, to share the information they are likely to need, and the "deal" that you would like to strike. Start with a centered approach that respects the family office and its people. The family office audience is generally not one that is easily bullied or bedazzled into making decisions that are inconsistent with their own experience or interests. Craft a reasonable deal yourself before beginning a negotiation.

My experience is that family offices rarely negotiate terms. They give little wiggle room . However nothing to lose for trying.

(a) Many family offices are interested in niche markets or specific industries. Leveraging my team’s expertise in these areas has been beneficial. Presenting in-depth knowledge in a sector of interest to a family office significantly enhanced the credibility of our proposition (b) Family offices appreciate opportunities for direct involvement. Offering co-investment options where they can invest alongside the PE fund in specific deals has been an attractive proposition, providing them with more control and direct exposure to investments (c) Sometimes, negotiations involve multiple generations with varying perspectives.