There have been a number of stories about the connection between family offices and startups. Family offices are basically private wealth management instruments that are formed by rich families. There are a lot of venture capital companies that established their worth through family offices, including Greylock Partners, Bessemer Venture Partners, Atomico, and Frog Capital.
There are so many well-off families that have built their empires via entrepreneurship or by making seed stage investment.
Rising Trend of Family Offices in Venture Capital
It has been estimated that family offices around the world have $4 trillion worth of capital available for investment purposes. Moreover, there has been a rising trend of family offices in the world of venture capital.
An increased appetite for venture capital has been found among these investors. Interviews with 300 family offices around the globe, revealed that 70% of them were either actively investing in the startups or assessing the investment exposure to technology VC. However, there is another group of investors who had mixed reviews. They were still in the process of either recovering from a sudden shock or were still unsure of how to go about investing in startups effectively.
Consequences for Europe’s Tech World
Venture capital firms in Europe have experienced a huge funding gap with the United States. There are more technology companies in Europe as compared to the United States with high production of developers, yet, startups in the European region only receive a small percentage of investment in relation to their United States counterparts. Unless there is an improvement in this section, Europe will always lag behind in the production of tech unicorns and famous brands like Google or Apple.
Apart from large companies, family offices that currently have $759 million in asset under management should also contribute in bridging this gap.
Higher Returns
If you look at it from a startup or venture capitalist’s perspective, the involvement of family offices is not a big deal. Having relatively relaxed procedures, family office investors have created a stronger network as compared to institutional investors with an ability to open more avenues effectively.
It is totally understandable if you look at it from another angle. For example, family offices always look for those investment opportunities that offer a higher return. They are moving toward riskier products that offer high yield, such as a venture capital opportunity to grab prospective profitable investments.
Moreover, there was a research where it was pointed out that those who are taking control of family offices have a natural inclination and a better understanding of small scale businesses in the technology industry with ground breaking and innovative business models.
Changing Perception
It is true that family offices alone cannot bridge the funding gap of Europe as it requires an alliance between city or national level governments, institutional investors, angel investors, and corporate sector alongside the richest families in the world. However, it is not easily possible as it calls for a shift in perception toward venture capital, especially in Europe because it is still far behind the United States in terms of progress.
On the opposite side of the Atlantic, there is a high inclination toward taking huge risks. It is beneficial in the long run, because venture capital generates value much higher than the basic investment. In America, everyone knows that talented entrepreneurs who couldn’t make it in the first attempt are actually winners in the making, who will definitely make it big next time. Unlike America where failure is considered a stepping stone, Europe takes it as a stigma, which eventually influences their decision of capital allocation.
With the rise of technology startups in Europe, risk attitude is gradually changing among private as well as institutional investors. It is highly likely that family offices will be investing in the next wave of European innovation and research and development. This leads to increase in the number of startups that will get to the point of escape velocity and will also thrive at growth stage and beyond.
If the tech momentum in the European market does not die down, family offices should make a heavy investment into venture capital or else it will be left behind from other regions as well, such as Asia.