The family office due diligence process can be a challenging process for emerging managers. However, with the right preparation, a clear understanding of expectations, and a commitment to transparency, you can successfully navigate this process and secure the seed capital you need to grow your fund. Below, we break down the key steps to help you prepare and position yourself effectively during family office due diligence.
1. Understand the Length and Scope of the Process
Due diligence with a family office is thorough, often spanning anywhere from two to six months. During this time, expect to provide substantial information about your fund, investment strategy, and prior track record.
Family offices will investigate your personal and professional history, including work experience and prior partnerships. Former colleagues, business partners, and even previous investors will be contacted to ensure your reputation aligns with the claims you make.
While this might seem exhaustive, it’s important to remember that this deep dive helps the family office protect its capital. The goal of due diligence, at its core, is to uncover reasons not to invest, so thorough preparation is key to avoiding any red flags.
2. Prepare for Consistent Underwriting Standards
Family offices don't make exceptions based on your fund size or strategy. They hold all managers to the same underwriting standards, whether you're a venture capitalist, a private equity manager, or running a hedge fund. This means every emerging manager must meet the family office's internal return expectations and risk parameters. It's a sign of accountability and responsibility that you must uphold.
As an emerging manager, your expected returns will typically be discounted or "given a haircut" by the family office's underwriting team. This is because emerging managers are often seen as having a higher probability of making mistakes due to limited experience.
As an emerging manager, you should be conservative and realistic in your return projections. Back your assumptions with quantitative data, vital valuation metrics, and a detailed understanding of your investment and exit strategies. Presenting evidence that supports your ability to overcome market risks will go a long way toward gaining credibility.
3. Know That the Term Sheet is Just the Beginning
Getting to the term sheet stage is a significant milestone, but it's just the beginning of the process. Once due diligence kicks off, the real work starts.
Every aspect of your fund will be scrutinized, from your operational infrastructure to compliance procedures, performance records, and even the market assumptions behind your investment thesis. Patience is critical, and the process can be slow, but showing patience and staying engaged sends a solid signal to the family office that you're committed for the long term.
Ensure that you provide information in a timely and organized manner, as delays or gaps in information can doubt your ability to manage capital effectively.
4. Leverage Strong References
One of the most critical factors in the due diligence process is how your past relationships perceive you. References from former colleagues and business partners are often decisive, as they provide family offices with insights into your character, work ethic, and ability to navigate challenges.
Ensure that you curate strong references who can speak to both your professional skills and integrity. Positive feedback from well-respected individuals in your field can be the deciding factor in whether a family office commits to investing with you.
5. The Importance of Transparency
As an emerging manager, it’s vital to be upfront and honest throughout the due diligence process. Family offices are seasoned investors, and any gaps in your track record or explanations that don’t hold up under scrutiny will be quickly identified. Transparency builds trust, which is often the foundation for securing capital.
Partner with Ashton Global for Seed Capital
If you're an emerging manager looking for seed capital, we’re here to support you as you grow your fund. With a focus on robust due diligence and a commitment to transparency, we aim to build lasting relationships with managers who have the potential to generate alpha for institutional investors.
Apply for seed capital today and take the next step in your investment journey with Ashton Global!
