External Finance An Issue For Family Business

NEW DELHI: Family businesses create more than 70 percent of global GDP, but their fund raising plans are “limited” as nearly 60 percent of such entities are struggling to find external finance to fund their investment plans, said a KPMG report.

According to the KPMG report titled, ‘Family Matters: Financing Family Business Growth Through Individual Investors,’ both family businesses and HNWIs have an appetite for investment and could prove to be highly compatible partners.

According to Capgemini’s world wealth report there are up to 14 million High Net Worth Individuals around the world with around $53 trillion of wealth, KPMG said. The HNWI are an “underutilised” route for investment many of whom have family business experience as well as significant investment capital, KPMG said.

“While many family managers may be open to the idea of bringing in HNWIs and other family businesses as equity investors, the difficulties in sourcing this type of capital and finding the right investors are holding them back,” KPMG noted.

Meanwhile, family businesses in India still see banks as their chief source of funding as nine out of 10 respondents were upbeat about bank financing. This reliance on bank financing probably accounts for the fact that only a fifth of respondents have obtained financing from HNWIs.

Going forward however, this possibilities of families and HNWI working together looks bright as eight out of 10 HNWIs respondents said they were interested in investing directly in family businesses.

“With its rise to the world’s third largest economy, India is poised for growth and reform and with more than 5 million family businesses the country offers a significant opportunity for investors,” Sanjay Aggarwal partner, head of family business, KPMG in India said.

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