Many family-run businesses in Singapore bogged down by external financing woes

Tap HNWIs for funding, entrepreneurs told.

Many entrepreneurs want to keep a tight hold on their businesses, but a new survey by KPMG reveals that keeping it in the family may be bad business sense.

The report revealed that family-run businesses across the island are struggling to find external financing for growth, owners generally keep the ownership and control of the business within the immediate family.

According to Owi Kek Hean, Head of Enterprise Market Segment at KPMG in Singapore “The issue of maintaining control and independence certainly imposes limits on the possible routes for family business financing. Private equity funding, for instance, often requires the entire business to be sold to maximise value in the event of an exit, while corporate strategic partners often see any investment as part of a longer-term plan to secure full control.”

The survey suggests that 58% of family businesses around the world seeking external financing to fund growth are failing to target the right investment partner.

It showed that 36% of family businesses lament that the current economic climate has affected their ability to finance projects through bank loans. The hunt for alternative sources of finance has thus intensified.

Globally, private equity and venture capital was ranked as the preferred source of external funding, followed by corporate investors. However, the nature of these two types of investors contrasts sharply with what family-owned businesses want from an external partner.

The survey found that one possibly underutilised route for investment is the involvement of high-net-worth individuals (HNWIs). Many of these individuals have family business experience as well as significant investment capital.

Findings show that the top priorities of HNWIs and family owned businesses align, making this under-utilisation surprising.

Among HNWIs surveyed, 37% name long-term capital appreciation as their top driver for investment, while 23% of family businesses name long-term orientation towards investment returns as their top investor characteristic.

Despite this good match, only 22% of family businesses state that investment from HNWIs is one of their three most important sources of capital.

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