Family Offices Are Making More Startup Bets As VC Shakes Out

Family offices are an oft-overlooked pool of investors, despite comprising a significant portion of startup investments. Nearly a third of startup capital in 2022 came from family offices, according to a 2023 PwC report.

The offices are often deeply private enterprises, quietly making their bets while staying out of the headlines.

But as venture funding has fallen — and generational wealth continues to grow — family offices are seeing more opportunities to write checks. A Goldman Sachs report found that 41% of its family offices surveyed last year said they planned to increase the proportion of capital they invest into private equity, including venture capital, in 2024.

That strategy can involve family offices investing in venture funds as limited partners or directly investing in startups. This year, hot startups like Perplexity AI and Midi Health have grabbed direct investments from top family offices Bezos Expeditions and Laurene Powell Jobs’ Emerson Collective, respectively.

And with newer generations stepping up to make deals, family office bets are leaning into emerging problems across healthcare and biotech, climate and sustainability, and education.

“VCs are looking for a 10-year exit, while family offices are like, how is this investment going to affect my grandkids and my great-grandkids?” said Sterling Snead, a principal in the Oklahoma-based S&S Global Family Office.

The upside of family money

While VC funds are typically expected to deliver returns to their limited partners within a decade, family offices can play the long game.

That’s a big advantage in this market, where pressure from LPs has forced some VCs to scramble for startup exits and led many firms to downsize.

“Family offices are well-positioned to invest in themes and strategies that might take longer to play out because they can be more patient with capital,” said Sara Naison-Tarajano, global head of Goldman Sachs’ private wealth management capital markets business and of the firm’s Apex business for family offices.

“There’s no question in my mind that that’s the biggest advantage to investing with a family office — the fact that they don’t have redemptions, they don’t have outside investors, and so they can be patient partners.”

Sumit Nagpal, founder and CEO of healthcare startup Cherish Health, told Business Insider in March that he hadn’t taken any venture capital funding for Cherish, instead raising $26 million from a mix of family offices, angel investors, and other companies. He said that strategy has allowed him to maintain control of the company and to find backers that weren’t swayed by hype cycles or the search for short-term returns.

Industries where startups might need more time to deliver returns, like life sciences and climate tech, could be well-suited for family office investments, Snead said.

He and Naison-Tarajano both highlighted longevity, which has exploded in popularity among tech titans, as a growing area of interest for family offices.

“It’s a specific focus for our family office clients, whether it’s therapeutics or detection of disease, medical device companies, or fertility advancements,” Naison-Tarajano said. “Unlocking and figuring out where the innovation in longevity is going to be, I think family offices are well-positioned to invest in these themes and strategies.”

Holding hands with VC

While many family offices are building more sophisticated investing teams in-house to invest directly into startups, Naison-Tarajano said, plenty are also putting more cash into venture funds.

Oliver Swig, cofounder and managing director of SOJA Ventures, which draws its capital from the Swig family’s billions in real estate, said VCs excel at sourcing deals across industries and leveraging their funds to get into those deals. Family offices may not always have the opportunities or bandwidth to do the same.

Co-investments between family offices and venture firms are on the rise, too. These structures typically allow family offices that are limited partners in a venture fund to put additional capital towards startups in the VC firm’s portfolio they want to double down on.

“We’re getting exposure to the greater portfolio, but we can also put more eggs in the baskets that we believe are winners,” Swig said.

Smaller checks, big personalities

The most obvious downside of family office bets is that their direct investment checks tend to be smaller than what venture funds can write. But there are other dynamics founders should consider when looking at working with a family office for the first time.

For one, family offices should invest in what they know — otherwise, they risk getting stuck in an investment that’s not suited to their strengths, said Adam Fine, the cofounder, general partner, and CEO of Windham Capital Partners.

“Sometimes, for one reason or another, a family office will get stuck in a company that is probably a bit foreign to them, and probably wasn’t the best fit given their knowledge and experience,” he said.

Family offices might keep their organizational structure private or otherwise implicit, so it can be difficult for founders to understand who’s in charge. Naison-Tarajano said she’s heard numerous stories of founders spending months engaging with a family office without knowing who the real decision-maker is.

“You can spend a lot of time on something that may not go anywhere if you’re not talking to the right person,” she said.

And while family office drama may not look like ‘Succession,’ plenty of families still have big personalities and interpersonal dynamics that can complicate the business, Swig said.

“I’d like to think that we are not echoing the current battles of the Murdochs, but there are inner politics that are always exciting and complicated,” he said. “I think that’s something that most businesses will face regardless of family members being involved, but obviously, with family members, it presents a personal landscape that couples with usual business stresses.”