It’s not uncommon for family and finance to intertwine—especially when a relative’s business takes off. I recently spoke with someone whose situation illustrates the challenge well: roughly 40% of their net worth was tied up in a company owned by their brother. After the business’s early success, the brother asked for another round of funding to help it expand. That request raised a difficult question: how do you balance loyalty to family with the need to protect your financial security?
The Problem With Concentration Risk
If 40% of your net worth is in a single company—especially one that’s privately held—that’s a major red flag. Even if it were a large, established company like Procter & Gamble, it would still be excessive exposure. But when that business is owned by a family member, the risks multiply.
The first issue is that this “net worth” may not be real in practical terms. Private company shares are illiquid and have no market value until someone buys them. Until then, it’s essentially monopoly money—on paper, not in your pocket. That means it shouldn’t be factored into your financial plan or considered a resource for future cash flow.
Don’t Turn Real Money Into Monopoly Money
You’ve already made your initial investment, and it’s now an illiquid, high-risk position. Putting more money in converts real, usable capital into something that might never become liquid again.
This doesn’t mean your brother’s company isn’t successful. It may very well be thriving. But that doesn’t automatically justify adding more personal wealth to the same private venture. Concentration risk is a real threat to long-term financial stability, and it’s especially dangerous when it involves both family and business.
The Family Dynamics Red Flag
The family aspect adds another layer of complexity. If your brother’s company is doing well, the question becomes: why does he need your money again?
If the business is profitable and growing, banks should be eager to extend lines of credit, and professional investors should be interested. If they aren’t, that’s a concern. He should be able to attract investors who bring not just capital but strategic value—people who can help take the business public, join the board, or guide future growth.
If he can’t or won’t do that, you need to understand why before putting in another dollar.
What If You Decide to Invest Anyway?
If you decide to move forward despite these concerns, treat it as a new investment—not a continuation of the original one. That means conducting full due diligence. Don’t let the company’s past growth cloud your judgment about its current prospects.
Ask the same questions any investor would:
- What are the company’s financials and growth projections?
- What are your ownership rights?
- Are you receiving distributions, or is all income being reinvested?
- How reasonable are executive salaries?
- What is the realistic exit strategy?
For any private investment, you should expect either ongoing distributions or a clear path to an exit within a defined time frame. Most private equity firms expect to see their money back within five to seven years. You should hold the same standard.
Protecting Your Own Financial Base
Before even considering another round of funding, make sure your personal financial foundation is strong. The 60% of your wealth outside your brother’s company should be enough to cover your full financial life. If it isn’t, you’re already overexposed.
Adding more to an illiquid private business—no matter how successful it seems—only increases your vulnerability.
The Bottom Line
Your existing investment already allows you to participate in your brother’s success. You don’t need to put in more to benefit from future growth. In most cases, the right move is to hold your current position and focus on diversification elsewhere.
I’d be happy to be proven wrong if this turns out to be the next great IPO—but in most cases, when these same red flags appear, the outcome isn’t good. Be cautious, protect your liquidity, and keep family and finances in healthy balance.
This post is adapted from a recent episode of the Scholar Wealth Podcast. For more perspective on family business and concentration risk, listen to the full podcast episode here.