Family Office Trends in Venture Capital – What QVentures Saw in 2020

When it comes to intergenerational wealth, Family Offices are faced with decisions of how to best plan for the future. For some, securing wealth for the next generation and growing their own legacy is ranked at the top of the list. Others are now considering the societal impact of their investments and how to create a more sustainable future for generations.

Many Family Offices are turning to Venture Capital. According to a Cambridge Associates report published in January 2020, “Venture Capital offers the potential for attractive returns relative to public equity markets, often in a tax-advantaged manner, thus allowing the portfolio to generate more wealth to support current and future generations.” As Venture Capital is at the forefront of industry innovation, venture opportunities are becoming increasingly attractive to Family Offices looking to leave a positive mark on their family portfolio and make an impact on the industries and societies they live in.

Direct Investing

Direct investing in start-ups can generate Family Offices impressive returns and allow investors to engage directly with founders. In comparison to investing through a hedge fund, families can choose to have a hands-on relationship with their investments and provide additional resources to companies.

“We have been lucky to have been supported by patient capital from a Family Office,” said an entrepreneur in a FinTech company who has experienced the positive impacts of an engaged Family Office. “This support has helped us grow our main product and several new initiatives and supported us in the entrepreneurial journey. It has given our customers the confidence to work closely with us as a company.” Most early-stage companies require time, attention, and mentorship, and through direct investing Family Offices can take on a bigger role, often sitting on boards or taking on advisory roles to help shape the future of the companies.

Investing in Funds

For Family Offices who don’t have the time to be as involved with the development of start-ups, investing in funds has become increasingly popular. With the average Family Office employing nine individuals, funds offer a range of benefits such as portfolio diversification and generating returns. They also allow families who don’t have the origination and due diligence resource in-house to be exposed to top-tier companies across a variety of sectors.

With their Pre-Seed Fund, QVentures has found that one-third of investors are Family Offices seeking to add to their venture portfolio a range of companies that have already been high-vetted through early-stage experts. Managing Partner of QVentures, Robert Walsh says: “We’ve seen a growing interest for our Pre-Seed Fund from Family Offices who want to invest at very early-stages and leverage off our due diligence and to then follow on with direct investments.”

Investing in funds presents the opportunity to invest in sidecars, giving investors the opportunity to build more exposure to specific companies in the fund portfolio. Only investors who have previously invested in the fund get this exclusive follow-on rights and can have the fund manager continue to manage the investment if they wish.

Return to Roots

As next-gens of Family Offices are taking the reins, there is a trend towards investments that are viewed as more relatable and tangible than traditional investments, yet keeping to similar sectors to provide expertise and add-value. Families whose historical wealth has been rooted in sectors like manufacturing are now interested in new technology start-ups that are disrupting these industries.

A key example of this would be CloudNC, a company revolutionising and digitalising the manufacturing business through the creation of autonomous factories. CloudNC has developed world-first AI software that automates and removes all skilled human roles in Precision Factories while also multiplying the yield of the machinery. With support from the UK government’s Future Fund, QVentures secured £6.7m of investment into CloudNC from 14 Family Offices. Of the investors, many had historical roots in the manufacturing sector.

The CloudNC technology marks one of the first realisations of the next industrial revolution, changing the way that the manufacturing industry is run and illustrates a classic example of how Venture Capital and Family Office investors can have a powerful influence on the future of different industries.

Impact Investing

According to Silicon Valley Bank’s Family Office Report published in August 2020, there is a “Nearly half (47%) of participants engage in impact / ESG VC investment. Interest is growing, particularly amongst the NextGen, and as Family Offices appreciate that returns are not necessarily compromised.” Through venture investments, Family Offices can have a lasting intergenerational impact, both in terms of financial returns and societal contributions.

“As a Family Office, with no firm investment mandate, we have the luxury of choice when it comes to building our venture portfolio,” comments a representation from a UK-based Asian Family Office. “One of our objectives is to keep up to speed with innovative technology-enabled businesses in sectors we are passionate about such as education. Kortext is a great example of this.”

The Family Office in mention has a historical connection to the education sector and recognised the positive social impact that companies such as Kortext, a digital learning platform, is having on revolutionising the industry. With students being forced into remote learning due to the COVID-19 crisis, Kortext provides access to over one million digital textbooks and supports teachers with tools to teach from afar. Kortext is championing equal opportunity for education as the platform provides access to textbooks and tools to students who may not have had the financial means in the past. By equalising access to education, this Family Office investment into Kortext is an example of impact investing while reinforcing historical ties to prior industries.

Finding a balance between generating returns and making a lasting impact can be tricky. Today, Venture Capital investments have the power to make a change on a social and industrial level and can transform the fabric of traditional sectors. Family Offices are among the few who have the opportunity to shape the future.

This article is written by Caitlin Traynor and Robert Walsh on behalf of QVentures, a Venture Capital firm providing direct investment opportunities and fund management. QVentures sources, screens, and invests in top-tier start-ups from Seed to Series B for their investor base consisting of Family Offices, Institutional Investors, UHNWIs, and Cashed-out Entrepreneurs. QVentures has participated in rounds with an aggregate combined size of over £220m in 115 companies.

For more information on QVentures, please visit www.qventures.co or reach out directly to caitlin@qventures.co

Family Office Trends in Venture Capital – What QVentures Saw in 2020

By QVentures26 Jan 2021