Family Offices Are Major Innovation Drivers, Report Says

According to a recent global report, family offices are actively funding innovative businesses. As a result, there is a visible boost in the venture capital segment and good returns for the FOs.

Just like anyone else, venture capital firms had to adjust to the new reality of the pandemic world. Although experts state that a lot of the changes were a long way in the making, even without the virus, the shift is highly visible.

Enter the family offices. A survey by the SVB Financial Group and Campden Wealth Research among 110 UHNW families with experience in venture capital indicates an unprecedented level of interest in the innovation business.

“They are increasingly more open and active in venture, particularly in early-stage companies through direct investments and funds. 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.”

— John China, President of SVB Capital.

Three tendencies stood out the most. First, the early-stage investments are in the focus of nearly all families across the globe. So far, this strategy has resulted in satisfactory results, which tells us the tendency is not likely to change. What’s more, FOs are not only sourcing their own opportunities, but also choose the direct approach over funding.

Then, the preference for co-investing has gained significant momentum. According to the affluent families’ advisors, partnering up with other experts in the field comes with a robust set of advantages, such as risk minimization and the benefits of sharing a network of connections. Although the new norm isn’t pleasant for the majority, the FOs are generally optimistic about the surprising amount of opportunities.

Finally, the statistic on impact investments and ESG (Environmental Social Governance) are more promising the ever. Nearly half of the survey participants confirm active interest and engagement, with the majority of the families driven by the next generation’s representatives. As the succession process continues, the numbers in the ESG sector are very likely to continue growing.

As for the venture capital return rates, they have successfully exceeded the expectations of nearly all participants. The average return rate is set at 14%, although experts are cautioning against the overall success. The general advice is to keep the hand on the pulse of the updates to get a clearer picture. 

Overall, family offices favoring venture capital is beneficial on several levels. From the FO side, the younger generation is getting a good deal of operational opportunities. And the innovation businesses get a sophisticated advisory approach along with the required funding. As long as these tendencies remain on moving upwards, a noticeable shift will take place at the global wealth management scene.

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