The Hot Asset Class for Family Offices

Family offices are getting more involved in venture capital and funding earlier stage deals than they have previously, according to new figures from Pitchbook, a private markets data provider.

So-called “non-traditional” venture capital investors — including family offices, sovereign wealth funds, and mutual funds — increased participation in all stages of venture funding during the first half of 2018.

This comes as the family office sector grows at a rapid clip: half of all family offices in existence today have been created in the past 15 years, Pitchbook said.

“Family offices often have entrepreneurial DNA and can provide patient capital that scales with founders and venture firms over the long-term,” according to Jim Marshall, head of the emerging manager practice at Silicon Valley Bank.

Non-traditional investors participated in 60 percent of late-stage funding rounds (series D+) in the first half of 2018, up from 49.3 percent for the entirety of 2017, Pitchbook reported. Series B deals were the fasting growing category for non-traditional capital, with a 35 percent rise in involvement between 2016 and the first half of 2018.

Much of the deal activity has been concentrated in the technology sector, which includes deals with Uber, Robinhood, Adyen, and Instacart in recent years, the report said.

According to the report, direct venture capital, private equity, and co-investing made up roughly 13 percent of family office portfolios on average. But these aren’t the only ways that the mega-wealthy are targeting the venture space.

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“Family offices are also starting to follow in the footsteps of large institutional investors, focusing on building long-term partnerships with managers and evaluating investment performance across multiple funds,” Marshall wrote in the report.

He added that family offices are starting to implement some of the company evaluation processes that traditional institutional investors use and hiring experienced, connected people to lead these investments.

“They are becoming more sophisticated and increasingly institutionalized as they build better processes for evaluating companies and funds to leverage for their unique value-add,” Marshall wrote. “Their continued growth and participation in the innovation economy is providing another source of capital to help tech and life science companies invent the future.”