Catalytic Capital | July 13, 2023

5 tips for attracting catalytic capital from wealthy individuals and family offices

Dario Parziale

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Guest Author

Dario Parziale

There is untapped capacity and enthusiasm for catalytic capital by “high net wealth individuals” (HNIs) and family offices. TONIIC recently surveyed more than 90 impact investors about their motivations, strategies and barriers when it comes to catalytic capital. Here are some suggestions for mission-driven enterprises looking to tap this market.

Demonstrate Counterfactual Impact

Many investors require evidence of counterfactual impact to deploy catalytic capital. We described that in simple terms as comparing what likely happens in a world where investors make an investment to what likely happens if they do not. 

Impact Investors seek to distinguish truly “catalytic” investments from those that are “merely concessionary.”  Entrepreneurs and fund managers seeking to raise money from these investors should address this concern by providing evidence of their counterfactual impact.

Leverage Interest in Innovation

Consistent with their interest in new and disruptive solutions, many HNIs and Family Offices are also attracted to opportunities where they can help facilitate innovations and test new strategies and structures. Understanding how HNIs and Family Offices use their capital to support pioneering efforts may help ventures and funds target their offerings.

Offer Engagement Opportunities

Given the interest of HNIs and Family Offices, it may be helpful for capital-seeking companies and funds to actively seek advice from these investors, offer them opportunities to engage, and ask for support and mentorship beyond investments. Of course, this only makes sense if the company or fund genuinely values the extra engagement; but if it does, there is an opportunity to attract both capital and in-kind assistance.

Lower Ticket Sizes

We encourage those seeking to raise Catalytic Capital to explore ways that HNIs and Family Offices can participate in smaller, early-stage deals. Larger players, such as institutional investors, tend to shy away from opportunities where the amount of effort that it takes to do a $250,000 or $500,000 pilot investment, for example, is the same effort it takes to write a $3-$5 million dollar check. Impact Investor HNIs and Family Offices have an oversized appetite for investing their time, talents, and connections in nascent investment opportunities with high-impact potential, albeit in “bite-sized” pieces.

Approach Early

Based on our research, Toniic recommends bringing deals to these target investors early in the investment cycle, when the check sizes often tend to be smaller. The business model / thesis should have initial validation and some impact evidence, but not yet fully proven at scale. In this stage, these investors can have clear additionality with the amount that they are providing. They are looking to finance innovation and are attracted to opportunities to set the stage for larger, later-stage investments. 

The key is finding the “sweet spot,” likely somewhere between $250,000 and multimillion check sizes. There is also a nascent opportunity to develop investment vehicles that would allow the pooling / syndication of this capital upfront, to respond to the most important problems and promising opportunities more quickly.

Dario Parziale is Head of Investment Research and Analysis at Toniic.