How Should a Family Evaluate an Investment Opportunity From a Close Contact?

Review a close contact's investment through the same documented process used for any other opportunity. Personal trust may open a conversation, yet it does not establish the investment's merits. In my experience, a consistent review protects family capital and the relationship by clarifying expectations before anyone commits.

Assess the Proposal on Its Merits

Request the materials you would seek from an unfamiliar sponsor: a clear description of the investment, proposed terms, use of funds, risks, assumptions, and records that support the case. Ask the sponsor what could go wrong, how the investment makes or returns money, and which decisions investors can influence. A short timeline or personal history does not replace the information your committee needs.

Find out whether a family member, committee member, or adviser has a financial or personal connection to the opportunity. Record the interest and decide how to manage it before assessing the merits. Written disclosure steps and clear committee rules help keep discussion open. The conflict review guide covers questions to ask when interests overlap.

Bring in an Independent Reviewer

Ask someone without personal involvement to assess the proposal. The reviewer can test assumptions, compare terms with alternatives, check references, and flag missing information. For a fund or manager, review the track record and investment process. Speak with the team and confirm material claims. For a direct investment, examine the business, its cash needs, ownership structure, and investor rights.

Allow enough time for the family to challenge and discuss the case. An investment committee can ask what evidence supports the expected outcome, which risks could cause a permanent loss, and what would make the family walk away. The investment committee guide can help define how the group reaches and records a decision. For a direct deal, the direct deal return calculator can organize return assumptions, though it cannot validate them.

Document the Decision and Preserve the Relationship

Set out in advance who can approve the investment and what information is needed before a decision. Keep the review confidential, record the reasons for proceeding or declining, and communicate the decision respectfully. If the family proceeds, put the agreed terms and rights in the governing documents. Consult your attorney and CPA about legal and tax details before signing.

Stop if important questions remain unanswered or the sponsor resists ordinary diligence. In The Single Family Office, I describe how families may reach a final review stage and still walk away. That option matters when a deal comes through a trusted contact. Treat the relationship fairly, while ensuring the family's process produces a decision it can explain and stand behind.

Many of the best-performing family offices that I have met credit their willingness to walk away from a deal, even at this late stage, as a big reason why they have been successful.

Sources: The Family Office Book, The Single Family Office. Informational only, not financial, legal or tax advice.