How Venture Capital Impacts Family Enterprises

Many businesses dream of growing exponentially and exceeding their expectations for success but what happens when a business reaches this level and doesn’t have the resources to continue managing? As a family enterprise, it can be tempting to entertain the idea of introducing outside investors or venture capital firms, especially if you need extra funding. Let’s explore the impact of this private equity financing on family businesses to see if it’s the right decision for you.

Pros of Venture Capital Within Family Businesses

Access to Capital

The biggest factor that family businesses consider with venture capital firms is money. In fact, family-controlled firms are more inclined to accept outside investors’ money when they’re financially constrained (Croce, A., Martí, J., 2017). With more capital, businesses can continue to thrive and tap into resources, research and development, and more. Money is the motive for almost all businesses, family-operated or not, making an outside investor’s involvement appealing.

Growth Opportunities

With more money, your family business has the opportunity to access resources they never had before. Your business can invest in operating systems, technology, and new products, encouraging growth and a higher level of operating.

Network Expansion

Money and internal growth opportunities are just two benefits – venture capitalist firms have access to an extensive network, offering the opportunity to put your business in front of an untapped audience.

Cons of Venture Capital Within Family Businesses

Conflict of Interest

Venture capitalists prioritize growth and money while family businesses often put community and long-term sustainability at their forefront. Though money is important to both parties, venture capitalists are more inclined to implement strategies with the goal of making money as quickly as possible. This can result in a conflict of interest, provoking trouble for family enterprises that aren’t accustomed to these practices (Martí, J., Menéndez-Requejo, S., & Rottke, O. M., 2013).

Loss of Control

A huge advantage for family businesses is the level of control over their entire operation. The influence of venture capital within a family enterprise minimizes the amount of authority the family has. Instead of leadership consisting primarily of family members, there is an additional board of people with decision-making authority. This loss of control can pose an issue and threat to some businesses. A venture capital firm’s ability to implement its management culture in the invested enterprise, or its conflict with the existing management culture, may affect overall growth (Pang, X., & Liu, L.,2020).

Priority of Growth

Fast growth and quick money ensure venture capitalists are getting their investment back. The short timeline can put pressure on the business to perform and operate at a level that may not be bearable, setting long-term sustainability at risk. The priority of development often conflicts with a business’s core values, ultimately creating a conflict.

Making the decision to employ a venture capital firm within your business is one that should be discussed with your leadership team and family business consultant. At Positively People, we strive to lead family businesses in the right direction with conflict resolution, succession planning, and more. Schedule a consultation with our highly trained team to see if venture capital funding is for you.


Croce, A., Martí, J. Financial constraints in family firms and the role of venture capital. Econ Polit Ind 44, 119–144 (2017).

Pang, X., & Liu, L. (2020). Venture capital, control rights, and family enterprise growth. PLoS ONE, 16(8).

Martí, J., Menéndez-Requejo, S., & Rottke, O. M. (2013). The impact of venture capital on family businesses: Evidence from Spain. Journal of World Business, 48(3), 420-430.

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