Across generations: The family office attitude to venture capital

Family offices, traditionally focused on wealth preservation, are increasingly engaging in venture capital (VC) investments. This shift sees varied approaches: some prefer direct investments in startups, while others opt for VC funds. In this insight, Simple Expert Kjartan Rist discusses how generational differences are influencing family office strategies in VC investments.

What you need to know

  • Family offices use various models for venture capital investments, including direct investments in startups and indirect participation in VC funds.
  • There is a significant generational divide in investment strategies, with younger investors favouring high-risk, high-reward opportunities and older generations leaning towards conservative approaches.
  • The younger generation is driving a shift towards sustainability and impact investing, emphasising ESG criteria and addressing global challenges.

Venture Capital Published on Simple July 9, 2024

Family offices have traditionally been the cornerstone of wealth management, focusing on preserving and growing the fortunes of affluent families. However, a significant shift is occurring in their investment strategies, particularly with an increasing involvement in venture capital (VC). This trend is not monolithic; different families and generations within those families are adopting various models and approaches to VC, driven by diverse mentalities, focuses, missions, risk appetite and motivations.

Diverse models of venture capital involvement

Family offices employ a variety of models for their venture capital investments, reflecting their diverse backgrounds and objectives. Some families prefer direct investments in startups, leveraging their extensive networks and resources to nurture nascent companies. Others opt for indirect investments by participating in VC funds. This method allows family offices to mitigate risks through a larger portfolio and benefit from the expertise of seasoned venture capitalists.

Generational differences in approach

Currently, one of the most intriguing dynamics within family offices is the generational divide in approaching venture capital. The older generation, having typically built their wealth through traditional industries, often exhibits a more conservative investment philosophy, prioritising steady returns and risk aversion. Also, in most cases not tuned into the latest innovation and technology developments.

In contrast, many of the younger generation, or “NextGens”, display a proclivity towards high-risk, high-reward opportunities. Typically well aware of the latest innovation and tech developments, they are also driven by a desire to create meaningful impact and are interested in startups that promise to tackle global challenges like climate change and poverty. Driven by companies and entrepreneurs who can make a positive dent in the world and yield substantial returns.

Shifting focus to sustainability and impact

The new generation of family office leaders is increasingly focusing on sustainability, climate change, environmental, social, and governance (ESG) criteria, poverty alleviation, and pollution reduction. This shift marks a significant departure from the traditional investment focus, which often prioritised pure financial returns above all else. For many family offices, Impact investing is not just a buzzword; it’s a critical strategy to align their investments with their values and create long-lasting positive change that can have a real societal impact on the world from a number of angles.

The evolution of venture capital

As the venture capital landscape evolves, so too does its role and impact. With the maturation of the VC industry and the increasing influence of family office NextGens, venture capital will become even more impactful. The new generation’s commitment to impact is driving this transformation.

Conclusion

Family offices are increasingly involved in venture capital, characterised by diverse models and generational differences. The younger generation’s focus on sustainability and impact is also reshaping the investment landscape. As family offices become more adept at integrating ESG and impact investing principles, venture capital will continue to be a powerful tool for both generating financial returns and fostering positive societal change.

This growing trend underscores a broader movement within the investment community towards responsible and impactful investing, reflecting a commitment to not only preserving wealth but also contributing to a better world. Impactful investments are both financially rewarding and socially beneficial.

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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