Family offices are increasingly investing in startups
It all started with the royal families and merchants of Europe, whose vast sums of money and assets were managed by financial, judicial and military advisors. Their sound decisions passed the wealth through many generations. Today, this advisory committee comes in the shape of dedicated family offices, who have historically done a stellar job of preserving and growing their family wealth through strategic investments and diplomatic ties.
Much of the world’s current wealth is still concentrated in these high-net-worth families. However, with the startling success of tech industries, there have been a lot more ultra-high-net-worth individuals (UHNWI) and families, with China producing two billionaires a week (PwC report Oct 2018).
As these UHNWIs move further along the privileged end of the socio-economic curve, managing, preserving and growing their wealth becomes more complicated. That’s where family offices step in. Depending upon the size of wealth and services needed, there are family offices that serve single families or multiple ones. Many of these family offices are based in the GCC.
Traditionally, 80-90 per cent of the wealth of these UHNWIs is
However, with the changing times, the advancement of technology, the younger generations’ entrepreneurial nature and understanding of tech — as well as the success stories of tech startups such as Souq.com and Careem — family offices are increasingly dipping their toes in the startup investment arena.
GINCO Investments partnering with TechStars to bring the accelerator to Dubai is just one publicised example of this forward-thinking openness to take advantage of the strengthening startup ecosystem.
Some would still call this a relatively low-risk move in comparison to their western counterparts, who are outpacing venture capital firms in the number of deals and amount of direct investments in startups over the past decade.
Naturally, UHNWIs who understand the tech behind innovations and are part of the industry, are more likely to make investments in startups in the sector. Hence, it does not come as a surprise that Omidyar Network, which serves eBay founder Pierre Omidyar and his wife Pam, was the most active family office, making 193 investments up until March 2018.
This interest in startups and young billionaires taking the lead in direct startup investments, were few of the shared sentiments among more than 450 family offices, royals, UHNWIs, conglomerate owners, business moguls, as well as sovereign wealth funds, who gathered in Dubai earlier this year for the 8th Global Family Office Investment Summit.
The Summit, hosted by Anthony Ritossa, the chairman of Ritossa family office, saw leading families of the world, representing more than USD 4 trillion in wealth, discuss Investing in the New Age. Some key takeaways were:
Cautious optimism in investments moving forward, owing to concerns of a global economic slowdown.
Investment strategies to be in line with the values of the next generation, which means an increased focus on social impact and social responsibility portfolios.
Interest in investment in the tech sphere, such as blockchain, smart apps and Internet of Things (IoT).
Proper planning for the transfer of wealth to the next generation, and involvement of the younger generation in investment management, which has been the concern and challenging aspect for many in the space.
The region is already seeing an increase in activity of these family offices, as they acquired substantial stakes in tech startups like Oliv, the internship and graduate job platform; and Awok, the discount e-commerce platform; as well as Fodel, the last mile delivery solution.
Despite the increase in the number of investments, they still invest with caution, entering mostly in the later funding rounds once they’ve seen the startup build traction in the market.
They also have a tendency to control some or many of the business decisions of the companies they invest in, depending upon the deal struck. However, their patience with long-term investments (as opposed to VCs who have fixed-term contracts), and network can prove highly beneficial to the startup’s growth.
As with any type of investor, family offices come with their own set of advantages and challenges. Their large capital capacity, long-term vision, patience, and increasing interest in startups, makes them competitively desired investors.
Startups can benefit from having them on board by understanding their preferences, interests and way of working. When things go well, these startup founders can become the new UHNWIs who employ family offices and support the next generation of startups; thereby multiplying the circle of wealth, just like the royals once did.