Family offices have traditionally flown under the radar when it comes to venture investing, but their involvement and profile in the space are rising. As of 2021, around 80% of family offices were making venture investments regularly – up from 40% a decade ago. And the amount they’re investing has increased, averaging around 12% of their portfolios last year, up from 10% the year before.
For family offices looking to grow their venture portfolios, generating, and managing deal flow is the first big challenge. According to the Harvard Business Review, only around 1% of venture deal flow ends up as investee companies. So out of every 200 opportunities, just one will make it into the portfolio, and if you want to invest in a diverse range of businesses, then thousands of potential deals need to land on your desk.
Achieving the holy grail of deal flow means not only building up a substantial pipeline of startups, but also ensuring they match your areas of interest, and having a team with the capacity to assess and ultimately filter out the best potential deals. How you approach the deal flow process will ultimately make or break your venture ambitions.
Scaling up the deal sourcing machine
Deal flow can originate from a whole variety of sources, but for a family office starting out, it is likely to be opportunistic, primarily originating from referrals from other family offices, entrepreneurs, professional services firms, or as an LP as part of a venture capital fund. As you look to increase your involvement, the challenge is to build a deal sourcing machine, incorporating inbound and outbound leads, that will enable the portfolio to scale.