Why more family offices in India are investing in start-ups

Family offices in India are showing an increased propensity to invest directly into the start-up space. This comes even as a large proportion of them have somewhat been late to participate in the Indian start-up boom.

According to industry experts, direct start-up investments are on the rise in line with what global family offices have done.

A majority of family offices in India prefer the Seed to Series A stage to enter a start-up, followed by a preference for a late stage to pre-IPO transactions. There is also keen interest among family offices to have well-distributed portfolio across stages, they added.

What are family offices?

Family offices are wealth management advisory firms that serve ultra-high net worth investors and provide a complete financial advice and solutions. Through family offices, clients get legal, investment, insurance, estate, business, tax, and even philanthropy-related advice.

There are either a single-family office (run by a family member or an external professional who looks after one family’s wealth) or multi-family offices run by professionals who serve more than one family.

In India, there are estimated to be over 200 family offices, and by 2025, family offices will invest around 30 per cent of the $100 billion raised by start-ups.

A recent joint report by Trica (a LetsVenture company), EY and AZB & Partners highlighted that direct start-up investments came out right at the top (75 per cent of investors surveyed) alongside Indian public market equities as the highest conviction opportunities for family offices over the next 3-5 years.

The on-par conviction for the two reflects the optimism investors have about the relatively newer start-up investment asset class, it added.

Shift to direct investments

Typically, family offices start their journey of private market investments by first allocating to fund of funds, then VC/PE and venture debt funds, and as they gain insights and understanding of how the market works, and how diligence is conducted, they dip into direct investments.

For family offices that have long-established credentials and presence in the market, “deal flow” tends to be inbound but direct opportunities are also being increasingly sourced from digital platforms and as co-investments alongside VCs, the report added.

Kanwal Singh, Founder and Managing Partner, Fireside Ventures said, “As the Indian start-up ecosystem matures, the family offices are increasingly looking to invest directly in start-ups. Several trends are emerging in the family offices’ approach to this space. Some of the larger family offices are getting better organised, setting up formal structures and hiring professionals to manage transactions.”

Singh added, “While seed stage investing continues to grow, more family offices are starting to invest in VC funds as well. They also look for co-investment in some of the funded companies even at later stage rounds of funding.”

Recent investments

In May this year, discovery and trial platform Smytten raised about ₹100 crore in pre-series B round led by Fireside Ventures and Root Ventures.

But the round also saw participation from four family offices including Sharrp Ventures (Harsh Mariwala Family Office), Waao Partners (Pratul Shroff Family Office), Survam Partners (Munjal Family Office) and Sattva Group Family Office.

More recently, homegrown chain Burger Singh raised ₹30 crore in Series A led by Negen Capital along with a slew of new and existing investors including KCT Family Office and VM Salgaocar Family Office.

These are among the growing number of start-ups that are bagging investments directly from family offices.

Major reasons

Munish Randev, Founder & CEO of Cervin Family Office and Advisors, said it was very natural for Indian family offices to start allocating to the start-up space. The key reason is the asset class has grown rapidly in India over the last 10 years and hence provides numerous opportunities.

The momentum of newer founders and start-ups has ensured that there is enough capital entering the industry which has provided the necessary boost, thereby attracting attention from the growing list of family offices, Randev said.

Indian start-ups achieving a fairy tale valuation growth, the increasing buzz around unicorns and stories of multiples of capital made from the industry has attracted the nextgen from family offices who are more comfortable in taking risks

At the same time, Randev also pointed out that some family offices have just dived headlong into the start-up ecosystem purely due to social/peer pressures (within a family office) or just ‘Fear of Missing Out’ (FOMO).

What investors say

Nandini Mansinghka, Co-Founder & CEO of Mumbai Angels, said that a lot of investors, not just individual investors who invest ₹5-10 lakh per deal, an increasing number of family offices and ultra HNIs are opting for making individual calls, deal by deal, on start-up investing.

Deepak Gupta, General Partner, WEH Ventures added, “Family offices have been strongly underwriting India venture funds over the past few years. Going directly into start-up cap tables is the natural evolution in their journey. The present market environment presents more space for them to do so as funding rounds are less contested than before.“

Ankur Bansal, Co-founder & Director, BlackSoil said that the key reasons for family offices showing an increased interest in start-ups have been non-linear returns, direct exposure to technology companies, diversification, networking, and strategic interest along with an ability to add value to early-stage entrepreneurs.

Karan Mehra, CEO, Tyke Invest, said that family offices are increasingly investing in start-ups across verticals by bringing confidentiality and discretion to the table.

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