Innovators look to family offices to plug investment gap

Venture capitalists are increasingly turning to family offices for funding, according to Gaurav Singh, founder of global start-up investment banking platform, JPIN.

As the global economic situation sours, start-ups have taken a significant hit, with funding for new businesses plunging in recent months. So could family offices, which tend to be more long-term in their investment approach, be set to step in and fill this gap? In the US, tech start-up funding has fallen 23% since the start of June to $62.3bn, according to the New York Times, while Crunchbase reported European funding was down 38% year-on-year in the second quarter.

This has led venture capitalists to turn to family offices for funding, according to Gaurav Singh, founder of global start-up investment banking platform, JPIN. Singh said there were signs family offices could ‘come to the fore’ in the space at a time when valuations are declining and institutional investors are backing away. ‘This increased activity from a different branch of the investment sphere could provide start-ups with an injection of much-needed capital which will also help to stimulate the economy during these challenging times,’ he noted. A survey published by networking group Family Office Exchange in July found respondents had increased their allocations to private equity by 5% from the same period last year, with 65% planning to go overweight the asset class.
In addition, up to 90% of global family offices report that they are participating in VC investments.

From the perspective of start-ups, family offices have the advantage of speedy decision-making and potentially longer time horizons and greater risk tolerance than institutional investors, Singh notes. He said: ‘From our experience working with both family offices and start-ups, the key to attracting family office investors is that the entrepreneur should have a solid and detailed business plan in place – with a running pilot program being a bonus. ‘They should also be aware of the investment preferences of the family office they are
approaching. ‘The proposed business plan should have clear objectives and goals along with directives on fund utilisation and the time period for which the funds are required.’