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August 19, 2020 at 10:05 AM
Family offices have invested in venture capital funds and startups for many decades, and in the 10 years to 2019, the pace accelerated sixfold, according to a new report from SVP Financial Group, the parent company of Silicon Valley Bank, in partnership with Campden Wealth Research.
Family offices have become more sophisticated venture allocators, investing through funds and directly into companies, the report said.
“In the last decade, family offices have emerged as a significant source of capital fueling innovation globally,” John China, President of SVB Capital, said in a statement.
“They are increasingly more open and active in venture, particularly in early-stage companies through direct investments and funds.”
Most of the data for the report was collected in a survey and 16 interviews between October and February from representatives of 110 ultra-wealthy families with experience in venture investing. In the second quarter, researchers sent out an addendum survey and conducted additional interviews in order to capture the effect of the coronavirus on family office venture investment activity.
The responding single-family offices had an average of $797 million in assets under management, and the responding multi-family offices had an average of $1.5 billion.
Robust Performance
Family offices have increased allocations to venture over the last decade and built in-house venture investment capabilities, mainly motivated strong historical returns, according to the report.
Venture investments constitute 10% of participants’ overall portfolios on average, divided between direct investments, 54% of the average venture portfolio, and funds, 46%.
Nine in 10 families said they favored co-investing with other families and venture funds as a way to share infrastructure and expertise. Co-investments make up 19% of the average family office venture portfolio among survey participants.
“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,” China said.
On average, family offices in the study hold eight funds and 10 direct deals. The average investment is $6.1 million per company and $7.9 million per fund.
Eighty-five percent of respondents said their venture investment returns in the 12 months before the survey had met or exceeded their expectations.
Family offices’ venture portfolios returned an average of 14% in the 12 months prior to the survey. Fund investments generated 16% returns, and direct deals where family offices had minority stakes returned 17%.
Families reported 15% returns from their co-investments, compared with a 10% IRR from direct investments where they have a majority stake.
