Global report shows that family offices are significant funders of innovative businesses and getting good returns
Family offices worldwide are making significant investments in innovation according to a new report.
Venture capital (VC) is currently adapting to new challenges caused by the pandemic but allocations to VC totalled 10% of overall portfolios of survey respondents with direct investment taking a 54% share of these investments and funds making up the other 46%.
Joining with other wealthy families or funds is a strategy used by 92% of respondents, citing the sharing of infrastructure and expertise.
The survey of 110 representatives of ultra-high net worth (UHNW) families focused on those that had experience of venture investing between October 2019 and February 2020. This was supplemented by additional data from the second quarter of 2020 to capture the impact of COVID-19.
It was conducted by SVB Financial Group and Campden Wealth Research.
John China, President of SVB Capital, says that the significant role that family offices have played in fueling innovation globally has been emerging over the last decade.
“They are increasingly more open and active in venture, particularly in early-stage companies through direct investments and funds,” he said. “Our research with Campden Wealth shows that family offices are seeing favorable returns in the asset class, and they are acting as strategic advisors and champions to the startups they invest in. We expect to see more family office investors in the venture ecosystem, collaborating and syndicating with like-minded investors and providing a differentiated pool of capital to founders.”
On average, annual company deal activity included 72 company pitches and three commitments, with an average investment of $6.1M. For funds, this included 41 pitches and four commitments, with an average investment of $7.9M. Most (81%) of deals were in North America.
Early-stage investments are favoured; 91% of family offices said they were most active in this space with strong returns resulting.
ESG and impact investing was engaged in by 46% of respondents, especially among next generation family office leaders.
Family offices have become more active in the #VC ecosystem over the past decade, with 76% investing directly in #startups
— Silicon Valley Bank (@SVB_Financial) August 11, 2020
Full report: https://t.co/ONftYM2aJ9 @CampdenWealth pic.twitter.com/sPZGdpcnRi
Returns deliver on expectations
Family offices’ venture portfolios returned an average of 14% in the 12 months prior to the survey with fund investments generating 16% returns and direct deals where family offices had minority stakes returning 17%. These returns met or exceeded expectations for more than 85% of respondents.
The impact of the pandemic is revealed in respondents saying that they may deploy capital at a slower pace, seek out better quality managers, and look for greater sector diversification.
However, 63% of family offices said capital allocation to venture will stay the same or increase despite the pandemic.
