It might be premature to say the impact of last year’s pandemic, recession and social protest movement are in the rearview mirror, but family offices, particularly in the US, are stepping up their investments in the venture asset class dramatically compared with 2020.
The average family office’s allocation to VC has risen to 24 percent of their total allocation, according to the Family Office Survey Report produced in tandem by First Republic Bank and Oper8r. This is a significant jump from the family office allocation to VC in 2020 when First Republic Bank reported that figure averaging at just 10 percent.
Venture investments have boasted an impressive track record in recent years, especially in the last year, with LPs raking in impressive returns.
“What’s happened in the last couple of years is you have actually seen capital being returned to those investors, which is a key metric for diligence,” Winter Mead, founder and chief executive at Oper8r and co-author of the report, told Venture Capital Journal.
Those LPs are then funneling that money back to the GP, Mead said, in addition to engaging with emerging managers in new ways.
Oper8r works with emerging managing venture capitalists to learn the ins and outs of fund finance and connect with LPs and raise institutional backing.
The survey was based on a mix of US and international family offices, with the US respondents comprising of about 95 percent of the survey. The family offices range in size from $15 million to $2.5 billion in assets under management, with a median size of $200 million.
The significant increase in family office allocation to VC comes on the back of another survey by placement agent Eaton Partners, released in April, which indicates that LPs worldwide are allocating more to alternative assets, such as venture.
The First Republic and Oper8r report also shows that in 2021, 5 percent of family offices won’t invest in VC funds at all, 19 percent will invest only in existing funds and 76 percent plan to invest in one or more emerging managers this year.
Meanwhile, 100 percent of family offices surveyed expressed interest in investing in emerging VCs generally, with 20 percent allocating exclusively in emerging VCs, according to the report.
Risk appetite is also on the rise among the LPs, as just over 75 percent of family offices indicated they would invest in a first-time fund.
Interest in emerging VCs can be chalked up to family offices’ lack of access to brand-name funds, the increasing size of established funds, the widening gap between emerging and established funds and the ability to deploy capital through co-investments alongside emerging managers, according to the report.
But LPs are beginning to open up to the idea that investing outside of the big funds may present other opportunities.
“If you invest into emerging managers, you actually get things from that relationship that you don’t actually get with established VCs you invest into,” Mead said. “One of those ways is through co-investments”
Just under 90 percent of family offices make co-investments, with the most active family offices making around 20 investments per year, according to the report. Over 40 percent of family offices are writing checks greater than $1 million at any given time in a co-investment transaction.
Only 27 percent of family offices employ a dedicated investment professional, however, family offices seem to collaborate closely with emerging VCs as 90 percent of respondents noted they invest alongside VCs.
“Family offices remain a strong source of capital for the venture capital ecosystem, and in particular, for emerging VCs,” the report says.
“While there are encouraging signs that family offices are more active, it appears also true from the survey results that family offices are leaning on early-stage VCs for sourcing and information.”