“Family angels” in Hong Kong help new-generation businesses fly
Integrating new-generation leaders into a family business is challenging for even the closest of families. One proven way is “portfolio entrepreneurship” whereby new enterprises are spun off and established by younger members of the family. To help them succeed they are given encouragement and support by “family angels”, usually senior family figures.
The idea of family angels may be common around the world but in Hong Kong it came to be known specifically as: “The family angel scheme” a type of start-up funding system within a family enterprise. The way it works is that the owner(s) of the company purposefully invest in a new and risky business, hoping that if the business is successful there will be ample rewards. If the new business is not successful they are willing to risk losing their invested money.
One well-known company that used this system was a manufacturing company in Hong Kong. This family company provided fledgling entrepreneurs with a learning culture, a transgenerational leadership development program, a family angel scheme and professional management.
As part of this process, NextGens in their mid-30s received coaching from the company’s top management and once ready they were invited to formulate a business idea in a related but non-competitive field. Their start-up plan was reviewed by the “family angels” – the nominated seniors - and, once accepted, a startup team was established comprising NextGens and, sometimes designated former employees. Once the concept had been proven, the parent company provided seed money and, in some cases, a loan to establish a new joint venture.
In general, to be successful these projects must be large enough to challenge the skills of the NextGens and make their efforts worthwhile. Risks also need to be balanced between the generations – to reflect the prudent yet risk-taking nature of the founders. Mature ventures may later be merged with the parent company with NextGens invited to operate their own division as executive directors or serve on the board.
Certainly, it is challenging and difficult to establish a new business enterprise, especially in a different industry from the founding company, so a robust system is needed to support the NextGen founders. Although establishing a new business is risky, it is often unrealistic to expect a second or third-generation leader to fight to save a flagging family business and so portfolio entrepreneurship is a good way to keep them in the family group.
The key points to remember are that family enterprises need to build a renewable resource pool in terms of leadership, capital, relationships and knowledge. To achieve this, the founders and other members of the business need to be ready and willing to work hard as “family angels” at mentoring the youngsters as they teach them how to fly.
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