Having managed a multi-family office for 20 years and having launched a funding portal, cap table management and investor relations service for startups in 2000, the focus of my career has been to understand the psychology of wealth.

Now with AngelSpan, a professional Investor Relations Service for startups and particularly targeted to increase the velocity of early-stage investing by family offices, I am frequently asked (often after I first explain what a family office is), ‘What do family offices care about? What do they invest in?’

The simple answer is they care about their legacy.

While many people understand the definition as the membership of a family member (son or daughter) to an organization their parents/grandparents belonged to, what I am referring to is a definition a bit more ‘old school:’

Wiki: Legacy {leg–uh-see}; anything handed down from the past, as from an ancestor or predecessor.

This is what family offices care about. Period.

Financial Legacy

Advisors to wealthy families, whether they be attorneys, accountants, or financial advisors, tend to understand this. Proper estate planning and financial management can work wonders to secure the family’s estate from unnecessary taxes, provide thoughtful inter-generational transfer strategies, pay for grandchildren’s education (one of my personal favorite legacies), plan any business succession strategies, and even help avoid intra-family disputes.

But once defined and structured, the tasks for the family then fall to the monitoring and maintenance of the financial assets and estate plan.

Necessary, but not very interesting for the family members.

Qualitative Legacy

Once the financial legacy is secured (and hopefully well communicated between the generations), the family will begin exploring their qualitative legacy — the values do they want to reinforce and leave behind for subsequent generations.

This is where the fun begins.

Philanthropy

Philanthropy is often the place families turn to begin defining what they care about and how they want to affect the lives of others. The instruments are varied, from ‘planned giving’ (specified beneficiaries as part of the estate plan), charitable remainder trusts, family foundations, Community Foundations, or simply direct and consistent donations.

The motivation to provide resources to help others — with no expectation of return — is a powerful motivator for those with such a luxury. Abraham Maslow understood this and captured it in Maslow’s Hierarchy of Needs.

In fact, charitable giving by individuals for 2014 (the last year for totals at the time of this post) was over $258 billion. Wealthy individuals gave over $80 billion — in donations over $5000 — to charitable organizations.

Three times as much as the amount invested in businesses by angel investors ($24B; Halo Report) and with no expectation of a financial return.

A powerful motivator indeed!

Impact Investing

There is a growing interest among high net worth families to look beyond traditional philanthropy for the vehicles to help define and further their qualitative legacies.

One such vehicle is Impact Investing.

Simply stated, impact investing refers to investments “made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return.” (Wiki; Impact Investing)

This is a similar agenda as pure philanthropy, but with the potential for a financial return.

Public vs. Private Markets

With the compressed returns now available from traditional public securities (stocks and bonds — see Ray Dalio’s video HERE; manager of $150B hedge fund), family offices and other institutional investors are looking beyond the public markets for a reasonable, risk-adjusted, economic return.

In fact, much of the funding in later stage ‘unicorns’ is driven by institutional investors moving money out of the public markets and into later stage private companies with the hope of a profitable IPO in a relatively short period of time.

The jury is still out as to whether that will prove to be a profitable trade.

Family offices are also increasingly looking for direct startup/private company investing to satisfy both their Quantitative (financial) returns, in addition to their Qualitative legacies.

If Ray Dalio is right, that returns from equities over the next decade will be roughly 4% per year, and with the ‘asymmetric risk on the downside,’ it is not difficult to see why so many investors are looking for more compelling risk adjusted returns in the private markets.

This bodes well for startups, Impact or not.

Leaving a Legacy

In my career I have said many times that managing money in the public markets is like backing into the future by analyzing the past, while investing in startups is like turning around and profiting from, and having an impact on, the future.

In other words, compressed public market returns with high risk versus investing in your legacy… and profiting from it.

Seems like a no-brainer to me.

What will your legacy be?

https://joe-26467.medium.com/what-will-your-legacy-be-18bbc4b60177