Author Archive Sofiya

BySofiya

What are Family Offices

Some years back I happen to be left hanging when I tried to define the meaning of a family office. Something tells me if I write it down in a simplified manner, my readers will be able to understand what a family office is. There are many definitions of a family office and as for me this is how I interpret it. A family office is an enterprise owned and managed by members of that particular family. The financial capital is the family’s’ own wealth. The enterprise offer various services ranging from insurance services, real estate development, solicitor services, financial management advice and manufacturing products.

History of family units

According to a worldwide initiative of independent experts, it is often assumed that Rockefellers, pioneered the family office in the 19th century. A historical example is that of Emperor August Ceasar, who ruled the Roman Empire from 27BC-14AD. He was one of the richest folks during his time because his empire generated approximately 25% of the global GDP. A big portion of the empires’ fortune, personally belonged to his family. American philanthropist, entrepreneur, and an industrialist, John.D. Rockefeller Sr. is often idolized as the pioneer of family office.

The family offices are sub divided to two categories which are: single-family office and multi-family office.

Single family office

It comprises of a couple and their children in its management ranks. It is operated and run by the family itself. They are their own clients and service providers. The public is not entitlement to receiving nay services from it. It is a private organization that manages the investments for a single wealth family. Other services typically handled by the single Family Office include property management, day-to-day accounting and payroll activities, and management of legal affairs. Family Offices often provide family management services, which includes family governance, financial and investment education, philanthropy coordination, and succession planning

Multifamily office

In a multifamily office, services are offered to many families and not only one. Their purpose is to generate profits to all parties involved. In today’s’ world, the law neither protects, nor regulates the use of the title ��family office’s; there is no specific qualification or experience needed. A professional multi-family office offers services such as administration, asset management, asset consolidation, asset performance monitoring, charity services, tax and legal services, trusteeship and risk management. These services are either offered in-house or the family office cooperates with dedicated external partners. Multi-family office provides:

• Investment strategy and performance reporting

• Wealth structuring – Tax, estate and succession planning

• Managing holding structures (trusts, foundations, companies)

• Philanthropic planning

• Global asset allocation

• Family business advisory

• Family governance

The family offices in general provide the following services: wealth creation, succession, asset management, asset allocation, family values and legacy, wealth protection, mentoring and risk management. The average staff of a family office consists of investment managers/specialists and a number of tax and legal experts. The benefit is all this professionals work as a team.

With the information provided above, you can get a good understanding of how family offices operate and the parameters therein, which at the end end of the day can prove to be very useful information.

 

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BySofiya

Why Seasoned VC’s Choose Staged Investments

One of the most challenging decisions for an investor looking to invest in a start-up or an established company is determining the appropriate level of funding and the right time to do it. Seasoned venture capitalists (VCs) choose staged investments as a technique to protect against capital losses. A staged investment is an investment in which only a partial amount is invested in the initial phase of funding. The remaining portion is invested as the company meets agreed upon milestones. This is done to minimize the risk of loss by the VC, in the case of business failure.

Why Do Venture Capitalists Choose Staged Investments?
Staged investments allow VCs to put their money where it is most efficient. Most businesses fail in the early stages, so staged investments assume that investing in later rounds yields more returns than early-stage investments. It is a process that allows investors to abandon investments with low returns early while focusing resources on productive projects that yield the best results. It is also a technique that allows venture capitalists to take risks on promising early-stage projects while giving them time to determine the quality of a particular project. Staged investments do carry some risk for the venture capitalist because built in the process is the possibility of termination. This reduces the expected return of a project. Even though the capital investment is reduced, there is a greater risk that the project will not mature. There are also market risks that might affect the viability of a project that need to be considered when determining the appropriate level of funding.

What are the Benefits for Venture Capitalists That Choose Staged Investments?
Beyond protecting capital from unpromising projects, staging also enables advantageous options for both the venture capitalists and the entrepreneur. Staging leaves both the entrepreneur and the venture capitalists with open outside options. The entrepreneur is free to work on other projects, and the venture capitalist can invest in other ventures. This is of benefit to the venture capitalist because they can replicate staging across many projects, thus multiplying their potential rate of return in later stages.

What Is An Ideal Stage of Investment?
Although staging investments assumes early rounds to be unprofitable, the level of funding at each stage is dependent on the output of a particular project and the analysis of potential risk. The ratio of early to later stage funding would need to be determined by the venture capitalists based on their risk capacity. With that said, later stage investments are most ideal. The possibility of termination of a project in the early stage in itself introduces uncertainty into the early stage which reduces the expected surplus after the risk is factored in. Once the entrepreneur has proven the viability of a project and moves on to the second stage, that risk is diminished which creates increase surplus from the second stage. This pattern continues, diminishing the risk of capital loss as the venture capitalists increase their investment.
Venture capitalists that choose staged investments are more successful because they can be more efficient. By only backing “horses that are in the race,” they ensure the highest returns possible.

 

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BySofiya

All about Crowdfunding

Crowdfunding is basically the art of raising money to fund a project through getting monetary contributions from a large number of people. It is a way of raising money by appealing to a huge number of people to contribute each a small amount of money which will in turn be able to finance a certain project. Many people go by the idea of asking a small number of people to donate large sums of money each. But crowdfunding works on the vice versa.

Crowdfunding uses the internet and social media to appeal to thousands of potential funders to contribute towards financing the project in question. The success of the funds appeal will depend greatly on how the project initiators reach out to potential financiers and how they popularize their appeal to a good number of people. This process has been successful in funding various major projects like creative projects, medical bills and expenses, scientific research funding, community oriented projects and many more. There are various types of crowfundings which include;

Debt Crowdfunding

Debt crowdfunding involves appealing to lenders to extend their hand and fund a project. The lenders give out their money to project initiators in terms of loans and expect to be paid back with interest. People mostly approach investors who are potential lenders and convince them to fund the project with assurity of returning back the money with interest. This method resembles a bank loan but the difference is that you take a large sum of money from the bank but here you borrow small amount of money from multiple lenders. This type of crowdfunding is popular for raising money for home improvements, to buy a car, debt consolidation or even to refinance credit cards.

Equity Crowdfunding

In Equity crowdfunding, investors give out their money not as a loan but in order to get equity in the company. Here investors give out their money in exchange for equity which includes shares in the company or even a stake in the company or business. Equity crowdfunding is popularly used to raise money to initiate a company or fund its launch.

Reward-based crowdfunding

This type of crowdfunding involves people contributing their money to fund a project in exchange for a reward. Here the contributors ensure they benefit from the fruits of the project which they contributed for. Lenders expect in return to benefit from items or products that the company or business is producing such as an album, electronics and many more. Most investors in crowdfunding are entirely hopeful of the returns of the project and will always monitor closely performance of the project to ensure they reap handsomely from their investment. They will even revise their expectations if appropriate returns are not met.

Donation-based Crowdfunding

In this type of crowdfunding, financiers give out their money without expecting any rewards in return. They extend their gratitude towards funding the project with an aim of fully assisting and financing the project for others to benefit from it. This type is used to raise money for non-profit making ventures, community utilities, philanthropic programs and ventures, building learning institutions and many more.

Crowdfunding has been a success in most occasions and has greatly helped in assisting variety of people and the entire community and has assisted in funding major projects of great importance.

 

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