There is no doubt that 2020 has been a challenging and transformative year. For some, every aspect of life has been upended by the pandemic; for others, the day-to-day has continued largely unchanged. No one, however, has remained completely unscathed.
The same is true in the business world. Many, unfortunately, have shuttered their doors or are on the verge of doing so, while other businesses are being created or pivoting in order to transcend the limitations placed on them.
Like most crises, the pandemic has presented not only challenges but opportunities for exponential growth as we learn how to do things more efficiently, more conscientiously, and more profitably. For high net worth individuals and families, who have already pledged billions to pandemic relief efforts, it has provided an additional way to support the economy while growing their wealth.
According to a recent New York Times article, these families, either alone or in concert, are investing directly in companies rather than going through traditional channels such as venture capital funds. While many are sticking to the industries in which they made their fortunes, some are branching out into other arenas that hold the promise of high returns while serving as a force for good. Over the past several years, an increasing number of individuals and institutions have invested in mission-based companies – those founded upon an altruistic purpose – as opposed to those who add a charitable arm later on. There has been an explosion of such businesses over the past six months, created by innovators and disrupters with solutions to the problems caused by the pandemic and which, theoretically, will continue to benefit the world once it has passed.
Such investments are also part of an overall trend toward empowerment with regard to managing one’s wealth. The research shows that many wealthy individuals and families are not merely funding these businesses, they are taking on more of entrepreneurial role. For those who don’t remember the “salad days” when their grandparent, great-grandparent, or someone even farther back started the family business, this is an exciting opportunity to help a struggling business navigate challenges and perhaps even become the Amazon, Netflix or Facebook of their generation.
If your family is considering such a venture, there are several things to keep in mind. For example, as with any investment, conduct your due diligence. Discern why an entrepreneur is coming to you for funding rather than an institution. Also, keep in mind that not every wealthy individual or family is invulnerable to the current situation. Know your worth, and seek guidance from professionals who can walk you through the risks and returns, particularly if this is an unfamiliar industry. Finally, communication with your adult children and other heirs is key. Provide them with the details of the investment, including any active role you have in it. Preserving wealth for future generations is a concern in the best of times, and even more so given the present uncertainty. Having a transparent, ongoing dialogue now will ensure that your heirs will have the knowledge and the tools to manage things long into the future.
