Family offices will keep hunting for unicorns amid lockdown

[SAN FRANCISCO] More than 90 per cent of family offices said they've invested in early-stage startups, and a majority plan to keep or increase existing allocations even as the pandemic creates fears of declining valuations, according to a survey released Tuesday.

While venture-capital investments will remain an important part of their overall portfolios, there will be a renewed emphasis on deploying capital more slowly and diversifying across different sectors, according to the report from Silicon Valley Bank and Campden Wealth Research.

"Family offices have emerged as a significant source of capital fuelling innovation globally," said John China, president of SVB Capital. "We expect to see more family office investors in the venture ecosystem, collaborating and syndicating with like-minded investors and providing a differentiated pool of capital to founders."

Such investment firms have proliferated this century, spurred by surging growth among the super-rich in technology, finance and real estate. There are more than 10,000 single-family offices globally, at least half of which were started in the past 20 years, according to accounting firm EY.

In the past decade, the number of venture deals involving family offices increased almost sixfold to 747, according to the report, fueled by a flurry of Silicon Valley startups that have since become billion-dollar companies. Given their longer investment time frames, family offices can provide "patient capital" to firms just starting out, and were involved with such high-profile startups as Ant Technology Group, Uber Technologies and Snap Inc, the report found.

Venture-capital investments constituted 10 per cent of the average family offices' portfolio, split about evenly between direct investments and fund managers, according to the report, which surveyed 110 representatives of ultra-high-net-worth families from October 2019 to February 2020. On average, participants held eight funds and 10 direct investments, with an average investment of US$6.1 million per company and US$7.9 million per fund.

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Even before the coronavirus pandemic, family offices were most active in the early stages of venture investing, which have historically delivered strong returns, according to the report. Venture portfolios returned an average of 14 per cent in the 12 months preceding the survey.

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