June 25, 2020

Family Businesses: Should I Bring In An Outside Investor?

The Covid-19 virus has dramatically altered the playing field for family-owned businesses. Almost all face challenges never considered just a few months ago. Some face real issues of liquidity and solvency. Capital markets no longer look the same nor as open. The very assumptions on which businesses have operated may be called into question. Now more than ever, many family-owned businesses are searching for new or additional sources of capital as well as expertise to navigate the reopening of the economy. One obvious solution is bringing in an outside investor. It is not a move to be taken lightly.

Pros and Cons

An outside investor brings a lot to the table. First, of course, is an injection of much-needed cash into the business. This capital can be immediately directed where it is needed most. Investors have connections to capital markets and other resources crucial to regaining business momentum or taking the business to a new level of prosperity. They bring a fresh set of eyes and ears to the conversation.

At the same time, an outside investor is just that – an outsider. A person not familiar with the family dynamics or structure that have made the business successful in the past. They may not operate in complete alignment with the core values of the business. Opening up the business to such an investor would sooner or later prove a mistake. And a costly one.

Finding the Right Investor

Finding the right investor must be prefaced with establishing why one is needed in the first place. Does the business need cash, expertise, clout or connections or all of the above? A firm’s attorney, accountant, or business consultant can help address these questions. If the answer is yes to one of any of these questions, then bringing in an outside investor may be the best route to go.

Vetting potential investors is the next step. The right investor must quickly grasp the challenges confronting the business. The investor will understand the importance of the family retaining control of the company and its operations; it means that the family is working together to keep things on track and make the business a success. A critical conversation must result in full agreement about the role and set of responsibilities that will belong to the investor. Above all, the investor must be in alignment with the core values of the firm. The time to avoid philosophical or operational differences in how the business is run is before they occur.

Bringing in an outside investor is a big step. Done right, it can provide the family-owned business with a sustainable competitive advantage.

CEO Coaching, Family Owned Business, Manufacturing, Mergers and Aquisitions , , , , , , , ,
About RobinAnn Bienemann
I come across as classy, sassy and pretty in pink even as the CEO and Founder of Crimson Rook, LLC. For 30 years I served in executive positions in manufacturing and technical fields and did it wearing 4” heals with a flowered briefcase! Here’s what I do: I specialize in helping businesses become scalable, sustainable and transferable. I know what distinguishes successful companies from those that struggle – it’s my gift of sorts. My accomplishments include being one of the first women to run manufacturing operations in Silicon Valley, serving as Senior Vice-President at Blue Arc, a $60M computer storage company in San Jose, CA. I serve as the Entrepreneur in Residence for the University of Connecticut’s Schools of Business and Engineering and as a board member of a regional non-profit supporting sustainable agriculture and economic development. As CEO of Crimson Rook, I have been a strategic advisor to more than forty companies over the years and have now taken that talent and expertise to the Mastermind & Peer Group world with the launch of the Family Business Cooperative - a year long program designed for Academia - helping them launch Family Business Programs. I am a creative and effective meddler I’ve done this in the affairs of business and academia and have created alliances in both public and private companies and government that span domestic and international borders. I am a bicoastal grandparent with the affectionate title of Grammie Bubbles. My skills beyond business include chemistry in the creative spirits department and singlehandedly providing the color pink its most deserved recognition. I have received my BA from Springfield College and Masters of Science from MIT’s Sloan School of Management as a Sloan Fellow. The title of my Master’s thesis was “Entreprenurial Redeployment in Large Organizations.”

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