Every year, thousands of startup founders set out in search of funding for their business ideas, offering the promise of substantial returns for family offices. Yet, the truth is that in another year’s time, only a fraction of those entrepreneurs will still be in business, while an even smaller number will ever make it big. Investing in these ventures is a risky and time-consuming business. So, it’s vital to do your homework before diving in.
Family offices who want to invest in startups effectively have three options; they can invest directly, through a venture capital partner, or they can opt for a combination of the two, often known as a hybrid approach. Every family office is different, and the approach taken will depend on their background, the skills and expertise within the team, and the time and resources available to assess and manage investments. So, how do you know which is the best approach?
Direct investment is growing in popularity amongst family offices, with figures showing that the amount of private wealth invested directly into European startups has grown almost five-fold over the past five years. Family offices are frequently attracted by the upfront cost savings, with no fund management fees to pay, as well as the full transparency they gain into the performance of underlying investments.