Ever wonder what happens after an entrepreneur sells their company for a billion dollars? The money doesn’t just sit in a checking account. For many, the next step is creating a family office—a private company that acts as a personal mission control for managing and growing that fortune for generations. It’s their own dedicated team of experts focused on one single goal: making smart financial decisions.
A central part of this mission is private equity investing, which is fundamentally different from buying stocks. While most people invest by purchasing small shares of public companies like Apple or Amazon, a family office often does the opposite. They use their capital to buy significant stakes—or even the entirety—of promising companies that aren’t available on the stock market.
But how do they pick the winners? These decisions are guided by a surprisingly strict checklist, not a speculative bet. It’s less like gambling and more like being a judge on a high-stakes version of Shark Tank, where every aspect of a business is scrutinized before millions are put on the line. This methodical approach is the secret to how they protect and expand their wealth.
Choosing Your Investment Style: Go It Alone or Join a “Supergroup”?
Once a family office decides to invest in private companies, it faces a fundamental choice about how to do it. Think of it like a rockstar’s career path. Do they write and produce their own solo album, maintaining total creative control? Or do they join a “supergroup” with other famous musicians, leveraging their combined talent and reach? This choice between going it alone or joining a team is central to their strategy.
The solo album approach is called direct investing. Here, the family office’s own team finds the company, does the homework, and takes a hands-on role in helping it grow. This path offers the ultimate control over every decision, but it requires a large, expert internal team to pull it off successfully. It’s the truest form of the Shark Tank model, where the family is the Shark.
On the other hand, joining a supergroup is like fund investing. Instead of picking the companies themselves, the family gives their capital to a specialized private equity firm. This firm acts as a manager, pooling money from many families to build a portfolio of companies. The family gives up direct control over individual businesses in exchange for the firm’s deep expertise, industry connections, and the convenience of a hands-off approach.
Many families don’t just pick one path; they do both. They might invest directly in an industry they know inside and out, while using funds to gain access to opportunities in less familiar sectors. But whether they’re going direct or investing in a fund, the process always starts with the same question.
The First Filter: What ‘Pond’ Do They Fish In?
That first question is surprisingly simple: “Where are we experts?” Before a family office even thinks about a specific company, they define the industries they will—and won’t—invest in. This isn’t just a preference; it’s their most important rule. A family that built its fortune in real estate development isn’t suddenly going to start betting on biotech startups. They stick to the world they know inside and out.
This disciplined focus isn’t a limitation; it’s their primary strategy for managing risk. Think of it as a powerful home-field advantage. When you have decades of experience in an industry—say, consumer goods—you can instantly tell a promising new beverage company from a passing fad. You know the suppliers, understand the customers, and can spot a weak business plan a mile away. This insider knowledge prevents them from wasting millions chasing hot trends they don’t truly understand.
This focus is about more than just picking winners. Because the goal is often to help grow the business, they need to bring more than just money to the table—they bring relevant experience. By staying within their circle of expertise, they can offer real guidance on everything from marketing to operations. But even within their chosen industry, not every company is a fit. They also have to decide on the right size, which brings us to the next crucial filter.
Finding the ‘Goldilocks’ Company: Why Size Is a Deciding Factor
After choosing their industry, a family office must answer a question straight out of a fairytale: is the company too small, too big, or just right? They almost never invest in brand-new startups—the risk is too high, more akin to gambling than strategic investing. On the other end, they can’t exactly buy a giant like Coca-Cola. It’s not just the astronomical price; it’s that a single investor can’t influence a massive, publicly traded corporation. They are searching for something in the middle.
This sweet spot is often called the “middle market.” These aren’t mom-and-pop shops, but they aren’t global titans either. Think of a successful regional company that’s a household name in a few states—a popular chain of burger joints, a trusted construction firm, or a company making high-end pet food. These businesses are established, profitable, and have a loyal customer base. They have a proven track record but still have significant room to grow into a national brand.
Focusing on these “Goldilocks” companies is crucial because it allows the family office to have a real impact. Instead of buying a tiny fraction of a huge company, they can purchase a large stake—or even the entire business. This gives them a seat at the table to help guide strategy, fund expansion, and use their expertise to turn a great regional business into a national success story. But finding the right size company is only half the battle; they also need to believe in the person leading it.
Betting on the Jockey: Why the Leader Is More Important Than the Product
You can find a perfect company in the right industry and of the ideal size, but all that work is meaningless without the right person in charge. There’s a classic saying in the investment world: “Bet on the jockey, not just the horse.” For a family office, this means the quality of the leadership team can be even more important than the product itself. A brilliant but flawed leader can run a great business into the ground, while a driven and trustworthy one can turn a good company into an industry leader.
So, what makes a leader “investable”? Beyond just a history of success, investors are looking for deep integrity and a compelling vision. Is this a person they can trust with millions of dollars and the futures of their employees? Do they have a clear, exciting plan for where they want to take the company? This is where the process becomes deeply personal. Investors will spend hours with a management team, not just in boardrooms but over dinners, to get a true sense of their character.
Crucially, they also look for coachability. Family offices don’t just write a check and walk away; they become active partners who want to help the company grow. This partnership only works if the leader is open to advice and new ideas. A stubborn “my way or the highway” attitude is often an immediate red flag, no matter how good the company’s numbers look on paper.
This becomes the most human part of the investment decision, moving beyond spreadsheets to assess trust, chemistry, and shared goals. Once they’ve found that perfect combination—a promising business and a leader they believe in—they move to the final checks.
The Final Check: Is It Making Money and What’s the Grand Plan?
After finding a leader they can trust, the family office conducts its final checkup on the company’s financial health. The most important question is simple: Is the business profitable? A company that consistently brings in more money than it spends is a much safer bet. While a young startup might lose money hoping for future growth, an investment of this magnitude requires a foundation of stability, making proven profitability a critical checkpoint for managing risk.
Interestingly, buying a great company isn’t the final step. From the moment they consider an investment, family offices are already thinking about the end: the sale. This is perhaps the biggest difference from how most people think about investing. Every private investment is made with a clear “exit plan”—a strategy for how they will eventually sell the business for a significant profit, often to a larger corporation or even back onto the public stock market. This grand plan influences every decision made along the way.
This final outcome is how performance is measured in private equity. Success isn’t judged by daily market news, but by the final sale price years later. All the pieces—a strong leader, healthy profits, and a clear exit plan—must fit together. This careful assembly shows that investing at this level isn’t just about having deep pockets.
The Billionaire’s Playbook: A Game of Discipline, Not Just Dollars
What was once the exclusive domain of billionaires is now a playbook you can read. You’ve peeked behind the curtain of family office private equity, moving from seeing big-money deals as random acts to understanding them as calculated decisions.
At the heart of this process is a surprisingly straightforward checklist that filters every opportunity:
- The Pond: Is this an industry we deeply understand?
- The Size: Is the company established but with room to grow?
- The Jockey: Is the leadership team experienced and trustworthy?
- The Plan: Is it profitable, and do we have a clear path to a future sale?
This isn’t high-stakes gambling; it’s methodical business building. The next time a headline announces a major buyout, you’ll see beyond the price tag. You will now recognize the quiet, disciplined thinking of a family office investment at work and understand the real story.
