The history of family offices has long been entwined with that of venture capital. Indeed, several leading VC firms have emerged from family offices, while many wealthy families have built their fortunes through entrepreneurship or by investing in (or managing) early-stage businesses. With some estimates placing family office wealth at $4T globally today, the diversity of investors from the family space in VC is on the rise. Research from Concentric last year uncovered a huge and growing appetite for VC among these funds.
Based on conversations with more than 300 family offices worldwide, Concentric found that around 70% of those surveyed are already actively investing in or evaluating exposure to tech VC. However, the majority of them are having a decidedly mixed experience of investing in the asset class and remain unsure about how best to approach it. This may have grave consequences for Europe’s tech scene.
European VC has a persistent funding gap with the U.S., which threatens the continent’s medium-term viability as a startup hub. Despite Europe as a whole incorporating more tech companies than the U.S., boasting stronger computer science schools, and producing more developers, European startups receive just a fraction of the funding of their U.S. counterparts. Until this is remedied, Europe will continue to lag the U.S. as a producer of tech unicorns, not to mention global brands on the scale of Amazon, Apple, Google, Facebook, and Snap. Along with large corporates across Europe, family offices – with a global average of $759M in assets under management – must be a major part of the solution to plugging this gap.
From a VC and startups point of view, ramped up family office involvement isn’t complex. Nimble and not tied to outside requirements, family office investors often have ability to open doors more effectively than institutional investors, and the capital required for VC investment is relatively small compared with the wealth many single or multiple family offices manage. Also, the next generation of family office management brings an innate understanding of and affinity with tech startups and disruptive business models.
Closing the European funding gap will require a coalition of governments, corporates, institutions, and angel investors alongside HNW families. And for that to happen, a mindset shift towards VC generally in Europe needs to occur, which is still perhaps two generations behind the U.S. on this front. In the United States, there is a more open attitude to business risk, a stance that pays off in the long run, because VC creates value over and above a specific investment. In the U.S. it is widely understood that talented but failed first-time entrepreneurs are simply success stories in waiting, while in Europe, by contrast, there lingers a stigma around failure, which can impact capital allocation.
Get access to dynamic family office data for your capital raising with our FINTRX Family Office Platform.