Making direct investments into promising startups undoubtedly has its attractions for family offices (FOs), but on balance, most firms tend to opt for a hybrid approach, by splitting their allocation across direct investments and specialist venture capital funds. In fact, research shows that it is roughly an even split between the two, with FOs on average allocating 46% of their venture portfolio to funds and 54% to direct investment.
This split makes a lot of sense, as covered in previous articles. Setting up an internal venture capital function is expensive, and time-consuming while managing a whole portfolio requires specialist skills and experience. In contrast, VC firms offer a one-stop-shop, where family offices can access all the talent and knowledge they need in one place while spreading their risk over a whole portfolio.
Furthermore, the venture capital industry, particularly in Europe, has matured rapidly in the last five or ten years, with a host of new funds entering the market, catering to different sectors, technologies, and sizes of business. In 2020, European VCs raised more funds than they had in any previous year, despite the impact of the pandemic, and 2021 has got off to a similarly strong start.