This week I was at a Family Office conference. It was a great group of family and multi-family offices. There was a great appetite for private investments and specifically early stage.
1. Active Investment- FO have historical been passive investors and allocated high-risk:high-return through classic venture funds. The trend has shifted away from investing in blind pools, but rather selective interests. Also, in many cases the investment is large enough to have active board participation. FO managers are paid to actively manage assets, not subordinate their job to a fund manager.
2. Long Term View- FO do not have fund type mandates around liquidity. It is patient money that can invest in longer R&D cycles. The pressure for a startup to exit quickly prior to monetizing a larger enterprise value isn’t there.
3. Bite Size-while most FOs have a range of min-max of investing, there are no hard and fast rules. Unlike a VC that has strict guidelines. A FO can also tier their investment into the startup.
4. Equity-Debt-hybrid- FOs typically do not have specific requirements around the form by which they invest capital. This is great for startups that may need equity for R&D but once product is in market, they may need debt for working capital.
5. Connections- FOs that I work with are typically attracted to startups where they can leverage their connectivity to support the growth.
6. Impact Investing- FOs are very mission oriented. If your startup is science based and solving real problems globally, FOs aligned with solving that problem will invest based on the opportunity to change the world. They view the financial benefit as a method for the business to be sustainable and scale.
7. Expertise- FO managers are wicked smart. They also have great access to resources to vet deals. (We get a lot of deal flow at The Combine from FOs). This has not historically been the case. Because of direct investment trends, FOs are hiring some amazing talent.