The founder of the Highworth Research database rebuts the idea that single-family offices have retreated from venture capital in the face of more challenging economic conditions.
(This news service carries the following commentary from
Alastair Graham, director, family office research, at Highworth
Research, a business that he founded. The firm has an
extensive database on the actions of single-family offices around
the world. This news service is its exclusive media partner. To
register for its database,
click here.)
On 5 January the Financial Times reported that
fundraising by US venture capital firms in 2023 had sunk to a
six-year low. The reasons are widely understood.
But the gloom can be overdone. One aspect of the problem facing
early-stage growth companies is that many are conditioned
primarily to solicit funding from venture capital companies and
do not look at the wider market for raising risk capital. Within
that wider market single-family offices form an important
source.
The problem, however, is that family offices are much harder to
identify. As a group they are opaque, only dimly visible, and
typically do not form a cohesive, easily accessible market such
as VC funds, pension funds, endowments, and other sources of
institutional or private capital.
Why single-family offices are a strong VC fundraising
source
Yet the journey to family office funding is worth making for many
young companies with promising growth prospects. There are good
reasons for this, including:
— There is wide availability of VC funding from single
family offices, which is not significantly retreating in the
face of economic headwinds;
— Family offices are not themselves dependent on external
funding, their capital is typically evergreen;
— Single family offices as a sector have continued to grow
rapidly in numbers over the past 15 years;
— Family office VC funding generally represents patient
capital, a willingness to invest for the longer term;
— Many single-family office principals like to invest in
business sectors which they themselves know well and often where
they have made their own fortunes. The quality of management
support for the startup may be strong in terms of recommended
business models, market entry processes, growth strategies,
useful contacts, and errors to avoid; and
— Venture capital investment is among the most popular asset
classes to which family offices allocate their capital.
The Highworth Database shows that 61 per cent of single-family
offices globally, or 1,546 out of 2,516 on the database, invest
in venture capital. That’s 2 per cent more than when Highworth
last analysed family offices for their VC allocation only eight
months ago.
Venture capital is the fourth most popular asset class to which
family offices allocate capital, after equities (74 per cent of
family offices), real estate (66 per cent), and private equity
(62 per cent).
However, the opportunities for fundraising from single family
offices vary depending on the region. The table below shows that
the chances of an early-stage company raising capital from a
single-family office in North America are far higher than in
Europe:
Moreover, in the case of Europe, Middle East and Africa, and
Asia-Pacific, the percentage of family offices investing in VC
has actually grown 2 per cent over the past eight months, and in
North America by 1 per cent. In a period in which the economic
headwinds have been so strong, these numbers certainly don’t show
a retreat from VC funding but demonstrate the resilience of
single-family offices as a VC fundraising source.
A straightforward professional solution for fundraising from
family offices is to use the Highworth Single Family Office
Database. This well-established online database provides detailed
profiles, including contacts at over 2,500 single family offices
globally, and identifies which ones invest in venture capital
either directly or through third-party funds or both. What’s
more, the database shows the business sectors in which each
family office in each of over 70 countries prefers to make its VC
investments.
