FAMILY MONEY SECRETS
Many of the ultra-wealthy use little-known private office entities as funding source for investments
The number of deals we see is mind-boggling. I wish I was 20 years younger because I have to say no to so many deals. Our pipeline is full. JOHN RISLEY, founder, Clearwater Seafoods and Ocean Nutrition Canada, at his office in Bedford, Nova Scotia
John Risley’s private, familyowned holding company, Clearwater Fine Foods Inc. (CFFI), has made roughly 20 equity investments over the past five years, in companies ranging from sports technology to skin care.
“The number of deals we see is mind-boggling,” says Risley, 69, the Nova Scotia billionaire and founder of Clearwater Seafoods and Ocean Nutrition Canada. “I wish I was 20 years younger because I have to say no to so many deals. Our pipeline is full.”
CFFI fits the definition of a “family office” — an entity that manages the finances and affairs of a single wealthy family, typically with a net worth north of $100 million. CFFI employs professionals, but as Risley notes: “The family drives the decisions.”
Family offices are a deep source of funding for companies seeking investment — an alternative or addition to more traditional sources such as venture capital firms. But family offices are often under-utilized as a funding source, in part because they vary widely in structure, size and approach, and typically don’t seek publicity. In fact, most avoid it. (A number of family offices declined interviews for this article).
“That’s the problem — these guys tend to be so secretive,” says Robert Niven, CEO of CarbonCure, a Nova Scotia technology company.
CarbonCure raised $10 million, including funding from a family office that Niven cannot name. “They opened some very hard-to-get-through doors for us,” he says. “The problem is that they’re so mysterious. … You have to work your networks to get in front of these people.”
Travis McDonough, CEO of Halifax-based Kinduct Technologies, says he’s “grateful” Risley invested in his company through CFFI Ventures. “We didn’t have to spend a ridiculous amount of time chasing a term sheet,” he said. “We had John.”
Kinduct’s athletic performance software is used by more than 85 professional and collegiate sports organizations, including most teams in the National Basketball Association.
Risley, an initial Kinduct investor, returned for Kinduct’s US$9-million Series A round last year, and even helped McDonough negotiate terms with the other participants: Intel Capital (which led the round) and Elysian Park Ventures, which is connected to the principal owners of the Los Angeles Dodgers. “I can’t state (enough) how beneficial it was to have John Risley inside those negotiations,” McDonough said from Palo Alto, where he moved last year.
Plaza Ventures, a Toronto venture capital firm, has raised three funds with the help of family offices. “They tend to be more sophisticated than your average private investor,” said Plaza Ventures managing partner Rob Richards. “And these families typically have experience in starting and running businesses.”
Richards notes they often move at a slower pace. And “a family office will be more dispassionate and more clinical in terms of the level of due diligence they apply.”
Régine Clément, a Canadian who is CEO of U.S.-based CREO Syndicate, says family office money is flowing into her network.
The non-profit syndicate encourages investment in cleantech, renewable energy and environmental opportunities (CREO). The network is comprised mainly of private investors and family offices. (Clément says there are up to 5,000 family offices in the U.S.)
“The interest of family offices to invest in the environment has grown exponentially,” she says from New York, adding that Canadian family offices are also eyeing such investments with more regularity.
Clément, who previously ran the Canadian Technology Accelerator for cleantech companies, says she’s also getting many requests from Canadians wanting to present potential deals to the CREO network, which has more than 500 investors. “I got maybe three or four emails this week from Canadian companies I know.”
She agrees that most family offices are very private. She can mention only a few of her syndicate members publicly, including the Capricorn Investment Group (started by Jeff Skoll, a Canadian and the first president of eBay), and Prelude Ventures (a onefamily cleantech investment firm).
On Feb. 15, two CREO participants — Encourage Capital and Zoma Capital — unveiled Pescador Holdings, a sustainable seafood investment holding company. Pescador was created with an initial $10-million commitment from Zoma, the family office of Ben Walton — grandson of Wal-Mart founder Sam Walton.
The rest of the CREO Syndicate remains somewhat anonymous, much like the family office sector in general. That poses a problem for entrepreneurs. “It’s impossible to figure out who is investing in what,” Clément concludes.
Thus John Risley is a rare bird: he’s actually willing to discuss his investing focus.
Risley said his investments generally don’t exceed $50 million. His 20-company portfolio includes skincare company Skinfix and Boston-based student loan company First Marblehead Corp.
“We’re not experts in any particular industry . ... We look for CEOs we think are really good at their business and have a particular vision.”
Risley says he has no sway in the day-to-day operations of the companies, but is happy to talk the CEOs through their challenges. “I’m just trying to bring 40 years of bruises and expensive lessons to bear for the benefit of these young people, so they don’t make those same mistakes.”