Accelerating Investments In Startups: How Family Offices Can Help!!
In the Present Times, family offices are playing an essential role in helping families oversee and manage their wealth. As a matter of fact, in the last decade, the number of family offices has increased ten times as now families want to manage their assets in a professional way. Family offices are private wealth management advisory firms that cater to one or a small number of Ultra-high-net-worth families. Apart from conventional wealth management advisory firms, family office services include the management of financial and investment plans of an upscale family or individual. From investment management to charitable services, family office management services take care of all. While performing various services, the firm focuses majorly on the needs and interest of the family they are providing their service to while maintaining their privacy and administration. In addition to this, their functions extend to pooling resources for investments, managing risks, and providing continuity across generations.
Usually, there are two main types of family offices:
- Single-Family Offices – They are generally associated with single affluent families and serve them exclusively.
- Multi-Family Offices – As the name suggests, they have a lot of clientele and are more prevalent due to economies of scale.
With the increased incorporations of Tech-based startups in the market, family offices have altered their way of investments from the conventional ones. Their advanced approach of investments in technology-based businesses has given entrepreneurs a chance to introduce technology into the market. From the adoption of new technologies to improvement in efficiency, all have helped families to plan their future in a digital age.
The most significant advantage of the investment from Family office management services is their patience in regards to the money invested; they don’t face liquidity issues in comparison to Venture Capitals, who generally have time-bound contracts with their investors. Moreover, family offices and Ultra-high-net-worth families prefer privacy and confidentiality, keeping their investments low key from the general public.
As per the statistics of PWC, China and other developed nations witness 15% holding of family offices in their startups while it is just 1% in India.
How is a family office contributing to the growth of startups?
The accelerated growth of tech-based ventures in the pandemic has forced family offices to invest in them, submitting to their high demand. No wonder this would be a crucial step in the development of entrepreneurial talent all over the world.
Besides their conventional approach, now family offices are looking for diversification, and promising new companies are the perfect spot for their money. By looking at the robust approach and booming growth of these companies, Family offices are convinced about their conviction and potential.
The United Arab Emirates, widely known as a startup hub, has managed to get Global family offices’ attention for private deals and co-investments. It is committed to support and uplift micro, small and medium business entrepreneurs all over the world. Sir Anthony Ritossa, Chairman of Ritossa Family Office, said, “UAE works hard to attract leading startups and offers them a premium quality of life with an amazing infrastructure, healthcare system, safety and sustainability”. These statements are proved by the latest family business survey from PWC, which shows the ultimate flexibility and agility of family offices in the Middle East due to different approaches to investing.
As per the statistics, the pandemic has affected the investment of many family offices; now, almost 75% of the investment is going into digital, technology and innovation promoting new businesses. Family office management services have realised sticking to their traditional approach of investment would render their businesses anachronistic in the upcoming 4 to 5 years. What actually drives the family offices to invest in new ventures is the potential and passion for delivering returns.
However, just like any other business, family offices also invite a certain set of advantages and challenges, but with their vast capital capacity, patience and increased interest in entrepreneurial pursuits, they have become competitive investors. Entrepreneurs can avail benefits from having them on board, and if things went as planned, they can become the new UHNWIs in future and can support the next generation of companies.
How do family offices decide which startup is suitable for their investment?
It is an assumed fact that promoters of a new venture or entrepreneurs would belong to the young generation or mindset. In contrast to this, many family businesses have dealt with entrepreneurs who belonged to a mature age group of entrepreneurs.
The first most critical thing for a family office to look into this ecosystem is to find a level playing field with the promoter or entrepreneur. What follows next is how they perceive them and whether they see synergies in what they can add as value to their business and strategies.
Once this alignment is found, then the other parameters like cutoffs, revenue-generating capacity, and theme which is suitable to their core need are looked upon. Fintech and digital content are the most probable parameters which family offices search for in startups.
Conclusion
Investments in startups by Family office is a two-way approach of investment which is advantageous to both entrepreneurs as well as family offices. A suitable investment can make a world of difference, assuring both the high business rates of return in the future.
About Xanara
Xanara is a private banking and wealth advisory focused on developing and implementing transparent and client-centric, financial solutions that are backed by expertise. We understand the weight of our solutions and act with the utmost care, resilience, and most importantly, integrity.