Family offices are increasingly involved in venture investing, with research showing that the average firm will now allocate 10% of its capital to funding innovative startups. Not only does venture offer the promise of outsized returns – around 25% to 35% on average – alongside the diversification of a family office portfolio, but many firms are passionate about supporting founders, often coming from an entrepreneurial background themselves. And this interest is only growing, as new generations come to the fore, with an eye for the latest tech and innovations.
But despite this natural synergy, venture investing can still cause headaches for family offices. Many have also been burnt by bad experiences in the past, making them reluctant or nervous about reinvesting. With the failure rate amongst startups standing at around 90%, and a tiny percentage even making it big, the risks of getting it wrong are significant. And, given they usually operate with small teams and have a broad investing remit, offices frequently struggle to make it work, without leaning on the support of external expertise.
So, what are the common issues that family offices face when venture investing and what can they do to ensure success?