Family Offices Gradually Fall More In Love With VC

A report casts its eye over how family offices around the world approach venture capital. Such organisations are often thought of as holders of “patient capital”, making them logical partners for VC as an asset class.

Family offices have become more involved in the world’s venture
capital deals, latest data in a report shows, increasing their
share of the total market and the volume of specific
transactions.

A study of 139 ultra-high net worth families and family offices,
as well as follow-on interviews with 10 family offices, found
that in the first half of 2021, FO-backed venture deals accounted
for 4.2 per cent of the total. That figure was up from 3.9 per
cent in 2020 and 2019. 

The total number of VC deals by family offices fell to 981 in the
first six months of this year; there were 1,179 in the whole of
2020 and 1,235 a year earlier.  In 2020, the average family
office held eight venture funds and 10 direct venture
investments. Today, they hold 10 funds and 17 direct investments.
Within the next 24 months, they expect to make 18 new investments
(six funds and 12 direct deals). 

The findings come from Family Offices Investing in Venture
Capital Report, by Silicon Valley
Bank and Campden Research.

Such figures underscore how ultra-wealthy families, mindful that
they are holders of “patient capital” and with less urgent need
for liquidity than some other investors, are a natural fit for
the VC sector. Venture capital funds typically have a maturity of
around 10 years or more. To justify that relatively low
liquidity, they promise superior returns to those in public
markets – a compelling proposition at a time of ultra-low
interest rates.

Among the main takeaways from the report are that investments
tend to be focused on growth areas, at 48 per cent of the venture
portfolio, followed by 28 per cent in pre-seed and seed
investments and 24 per cent in Series A investments. Meanwhile,
the study found that family office staff and VC teams are
growing, but top talent is in short supply. Today the average
family office staff consists of 15 members, including two VC
investment professionals, with plans to bring in one additional
venture capital specialist within the next five years. 

Some two-thirds (67 per cent) of family offices rely on their
existing network for deal flow, as the best venture deals
continue to be hard to access. Most family offices rely on their
existing networks, GPs of venture funds, founders, and other
family offices for deal flow. Only 1 per cent currently use
digital platforms. 

Perhaps understandably in the age of COVID-19, the report found
that 18 per cent of family offices have venture investments in
life sciences, e.g., biopharma, drug discovery, medical devices,
diagnostics, etc. Energy and resource innovation, including
climate and sustainability, is an increasing area of focus.
Notably, a family office was behind the team in Germany
developing the BioNTech vaccine for Pfizer, as revealed
by Highworth
Research. (This news service is exclusive media partner with
Highworth, which is a database and research facility for single
family offices.)

The family offices have headquarters across 30 countries, with 49
per cent cent being in North America, 27 per cent in Europe, and
25 per cent in the rest of the world.

Other numbers

Globally, the average single-family office with experience in
venture capital manages $989 million in assets – or 75 per cent
of the average $1.3 billion in family net wealth (compared with
$797 million in AuM reported in our 2020 report). However, 66 per
cent of the offices manage up to $500 million. The report noted
that family offices “tend to follow a similar path in their
venture capital journeys.” 

Family offices often begin with fund of funds – a convenient
option, which can provide diversified exposure, including to
established managers – and ad hoc direct investments referred
from friends and family – which help them gain crucial
experience, the report said.

Single-family offices employ a variety of structures for their
venture investments, including an annual allocation (29 per cent
of the relevant participants), a special purpose vehicle to
capitalise on opportunities as they arise (28 per cent), and a
venture fund with management team and single limited partner
(i.e., the family) (21 per cent). Funds with a single LP are
relatively more popular in North America (31 per cent versus 11
per cent for the rest of the world). SPVs and subsidiaries with a
dedicated pool of capital are relatively more popular in the rest
of the world (32 per cent and 18 per cent, respectively – versus
24 per cent and 7 per cent, respectively, for North America).

As of 31 August 2021, $418 billion was invested in venture
capital deals globally, surpassing the full year record
established in 2020 of $333 billion.