What are the biggest challenges family offices face when venture investing?
Family offices are often involved in venture investments and this interest is only increasing as new generations take the helm. Healthy returns, the opportunity to diversify and support young entrepreneurs are just some of the benefits of venture investments. Inversely, there can be some challenges to navigating these investments, but what are they? And how can family offices overcome them?

What you need to know

 

  • Venture investing is increasingly popular amongst family offices, who are attracted to the promise of large returns, a diversified portfolio and the chance to support entrepreneurs.
  • However, large failure rates among startups, and the risk of getting it wrong can lead to stress and hesitation for the family office.
  • Other challenges can stem from the family office themselves and the way they approach venture investing. These can include a vague process, a lack of time to focus on investments, a lack of diversification and choosing the wrong investment partner.
  • These challenges are not insurmountable, however, with the right planning and specialist expertise. A hybrid approach, comprising a combination of partnering with venture funds along with co-investment, or some direct deals, will offer the best solution for most family offices going forward.
Investments Published on Simple June 1, 2021

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?

About the Authors

Kjartan Rist

Kjartan Rist

Venture capital investing

Kjartan is a Founding Partner of Concentric, the London & Copenhagen-based venture capital firm. He helps family offices gain a better understanding of VC investments and how to allocate towards this.

Connect with Kjartan Rist

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