How Family Businesses Are Approaching Venture Capital
The younger generations taking the helm of family businesses are jumping on emerging opportunities to enter the global venture capital space. With many of these family offices turning over the reins to younger leaders, the latter are showing confidence in venture capital. According to research, they are not shy about committing significant portions of their family wealth into early-stage ideas and start-ups.
At the back of their minds, these family offices know that they have ‘patient capital’ and are less likely to require liquidity than other investors, which makes them a good fit for the venture capital (VC) space. The promise with venture capital funds is a maturity period of about a decade or more, which justifies the low liquidity needs, but the promise of superior returns also makes them a compelling option to consider.
While venture capital remains an attractive option for family offices, they also have to approach the various opportunities with a clear understanding of the legal structuring of VC deals.
That’s why individuals such as Dr Edgar Paltzer, a Switzerland-based attorney-at-law who provides legal advice on wealth structuring servicers for clients, is a valuable resource to turn to when considering VC investing.
The VC Investment Model
According to the Family Offices Investing in Venture Capital 2021–2022 report by Campden Wealth and SVB Capital, family offices in many jurisdictions follow a similar venture capital journey. At first, they tend to put their capital into fund of funds, which have the advantage of diversified exposure, and direct investments into ad hoc opportunities referred to them by family and friends. These two options provide much needed experience as the family office weighs how to get further involved.
With much-needed experience under their belts, family offices turn their focus towards gaining higher returns, which can mean considering emerging fund managers. While this option often requires more due diligence on the available funds, they are easier to access. Family offices can also choose to partner with like-minded families, which grows their networks and enables them to share resources and learn from more experienced counterparts. This experience is vital, as it can set the stage for even further investments with established VC fund managers with successful track records.
Regardless of the approach that a family office is taking, it needs decision-makers who are dedicated to seeing through their investment into venture capital. It makes sense that younger generations are being charged to get involved early and develop the expertise needed to find success.
