What a direct deal team really costs a family office

Built on Chapter 11 of The Single Family Office by Richard C. Wilson. Full chapter text: FamilyOffices.com.

Families that move into direct deals often focus on the price of each company. The bigger long-term cost is the team needed to find and manage those deals. Getting that math right early saves a lot of pain.

Start with time, not salaries

I like to start with hours. If each deal deserves at least 40 hours of diligence, one full-time professional can review about one serious deal a week. That is roughly 45 to 50 deals a year, and only a few of them will close.

Now add the work after closing. Board meetings, monthly check-ins, follow-on decisions, and the exit all take time. In my experience, investors who meet with their companies monthly do far better than those who check in once or twice a year. Monthly meetings across ten companies is a real workload.

So a family that wants to close four or five deals a year and manage a growing portfolio usually needs more than one person.

The three ways families staff it

In my experience, families choose one of three models.

Build in-house. The family hires a head of direct investing and later adds analysts. This gives the most control and privacy. It is also the most expensive and the slowest to build. Experienced dealmakers are in high demand, and the best ones expect pay tied to results.

Partner with a deal sourcing firm. Some families hire an investment bank or M&A firm to act as an outsourced chief direct investment officer. This costs less up front. The hard part is finding a firm that understands family offices and can bring steady deal flow from other families, private equity funds, and institutions.

Ride with others. Families that are not ready to staff up can co-invest with funds or join club deals led by experienced families. They lean on someone else's team while their own people learn.

Costs beyond the payroll

Payroll is only part of it. Families also pay for:

Legal work on each deal, which grows with the size and complexity of the deal.
Outside experts for accounting, industry checks, and background checks.
Travel to meet owners and visit sites.
Events and conferences used for sourcing.
Broken deals, which can eat real money before anything closes.

Compare it to fund fees

The case for a team gets clearer when you compare it to what the family pays in fund fees today. Fund managers usually charge a yearly fee on assets plus a share of profits. On a large allocation, those fees can be far more than the cost of a strong in-house team.

That is the trade many billionaire families make. They accept higher fixed costs in return for lower fees, more control, and deals that fit their long-term view. It only works if the team is good and the deal volume justifies it.

Pay for the right behavior

How you pay the team shapes what it does. If people are paid to close deals, they will close deals, good or bad. I prefer pay that rewards long-term results, such as a share of realized gains over several years, with a meaningful base so people can say no to weak deals.

Start small and grow into it

Most families do not need a full team on day one. A sensible path is to start with one senior person and an outside sourcing partner, plus co-investments to build experience. Add staff as the portfolio grows and the family sees which industries produce real deals.

What to take from this

Size the team from hours of work per deal, not from a target headcount.
Pick a model: in-house, outsourced sourcing, or riding with others.
Budget for legal fees, outside experts, and broken deals.
Tie pay to long-term results so the team can turn down weak deals.

This page is general information, not legal, tax, or employment advice. Speak with qualified advisors before hiring or setting compensation.

Questions and answers

How many deals can one direct investing professional handle? At 40 hours of diligence each, about one serious review a week, plus the work of managing closed deals.

Do family offices need an in-house deal team? Not always. Many start with an outsourced sourcing partner or co-investments.

What costs do families forget? Legal fees and outside experts, plus money spent on deals that never close.

How should a deal team be paid? I prefer rewards tied to long-term realized results, plus a fair base salary.