An Alternative to Venture Capital for Backing Growth Companies

The increasing Influence of Family Offices:
An Alternative to Venture Capital for Backing Growth Companies

Simon Roderick

July 21, 2023

In recent years, within what is the traditional preserve of venture capital (VC) investing, Fram has seen increased activity in family offices being an alternative source of capital to VC.  These private wealth management entities, formed by ultra-high net worth families, have steadily shifted their focus towards financing innovative startups and high-growth enterprises.

Family offices have long been known for their conservative investment approaches, favouring more traditional asset classes like real estate and listed equities. However, with global economic shifts and technological advancements, these entities have embraced a new perspective on investing. There are indeed less listed firms than in previous years, and markets have been volatile. Therefore, in search of higher returns and diversification, family offices have been allocating a significant portion of their portfolios to private equity and venture capital-like investments.

One of the primary reasons growth companies are increasingly turning to family offices for funding is the patient capital they provide. Unlike traditional VC firms that typically invest for defined periods before exiting, family offices tend to have a longer investment horizon. They are willing to hold on to their investments for an extended period, allowing companies the time and space to grow organically and develop sustainable business models. They also bring far more than financial resources to the table. Many have a wealth of industry expertise, valuable networks, and a deep understanding of business dynamics. This hands-on involvement can significantly benefit growth companies, as family offices act as strategic partners, guiding them through critical decision-making processes and offering valuable insights.

According to a recent report by Titanbay and Campden Wealth, family offices have been steadily increasing their allocations to direct investments in private companies. Currently, the average UHNI invests approximately 20% of its portfolio into private equity, with an aspiration to raise this to 23%. This trend demonstrates a growing interest in providing funding to growth companies. Additionally, PitchBook's 2023 Private Capital Outlook reported that family offices' participation in direct investments has risen significantly, with more than 45% of surveyed family offices indicating they were actively seeking direct investments in startups and growth-stage businesses.

Some would argue that VC firms often focus on high-risk, high-reward opportunities, whereas family offices often look for niche investments with more predictable revenue streams and stable growth potential. This preference aligns with growth companies that may not be the next "unicorn" but have strong fundamentals, attractive market positions, and sustainable business models. One aspect of family office investment we’ve seen with clients in this sector is their desire to prioritise non-financial goals, such as social impact and sustainability. This vision can resonate well with purposed focused startups and create a strong partnership, fostering mutual understanding and long-term commitment to a shared purpose.

There is no doubt going to be increased competition between ever growing, and ever more sophisticated family offices, and VCs to secure the best investments. The rise of family offices as a significant alternative to venture capital in backing growth companies reflects a fundamental shift in the investment landscape. Their patient capital, long-term vision, and strategic value-add have attracted a growing number of entrepreneurs seeking funding. As family offices continue to increase their exposure to direct investments and niche opportunities, their impact on the growth company ecosystem will undoubtedly strengthen. With an alignment of values and a focus on sustainable growth, family offices are proving to be more than just a financial resource – they are becoming valued partners in the success story of many promising ventures.

About Fram Professionals

Fram Professionals focuses on placing office professionals in dynamic, innovative, or venture-backed firms in the London – Oxbridge “golden triangle”. We focus on mid-to-senior permanent hires across key functions such as finance, sales & marketing, legal, and management positions.

Contact us on [email protected] or call 01525 864 372 for an informal chat about our services.

Share this Post