Family Office Venture Capital Outlook 2020
At the start of 2020, Kauffman Fellows and First Republic Bank surveyed family offices (“FO”) to better understand their current investment theses and outlooks. We ran the survey again to explore how COVID-19 has changed family office outlook.
Family offices are becoming an increasingly important part of the venture capital (“VC”) landscape. In fact, a recent Ernst and Young report found that there was a 10-fold increase in the number of family offices between 2008 and 2017.
Family Offices Overview
We surveyed family offices from around the world, with 83% being in the United States and 17% being international.
Survey respondents included individuals from all levels of the organization – from analysts up to the firm leadership. In this case, 72% of responses were from founders, managing directors, and C-level executives.
Of the executives interviewed, over 60% of key decision makers were 55-years-old or older. We believe the age of these decision makers has a strong influence on the survey results, including their investment theses and sentiments towards diversity.
Family Offices & VC Allocation
Our data shows that the average venture capital (VC) allocation for family offices is 10%.
The vast largest areas of interest were sector-focused firms and micro-VCs. The average allocation was over $2.5 million, with the maximum commitment being $10 million and the minimum being just $25,000.
Remarkably, family offices said they would add 2 new VC fund managers this year despite the turbulent macro environment. This is the same number as they added in 2019.
A large majority – 91% – of FOs are interested in sector or stage-specific funds.
Our data from the Kauffman Fellows Research Center shows that gender diversity and ethnic diversity are drivers of higher returns for investors. So, it stands to reason that family offices may want to put more emphasis on investing in diverse fund managers.
We expect diversity to become a larger topic for family offices in the coming years.
We were impressed by the number of family offices that have adjusted to the times. In specific, 62% of family offices were willing to make an allocation to a fund without a physical site visit or meeting the manager in person.
Looking at the last economic downturn, a number of well-established brands like Airbnb (founded August 2008) and Uber (founded March 2009) scaled during tough times. Family offices and limited partners (“LPs”) do not want to miss any opportunities.
In addition, FOs seem to be well capitalized. 97% of family offices have no changes to their capital calls due to COVID or the subsequent lockdown. Only 3% expect to delay capital calls.
In the eyes of family offices, some general partners (“GPs”) are attempting to deploy funds too quickly. The second most troubling factor is inconsistent communication from GPs to LPs. For those raising funds, we would pay particular attention to these points.
Conclusion & Discussions
Despite the uncertain social, political, and environment factors, our data shows that family offices plan to increase their allocations into venture capital and private equity.
Family offices plan to invest in two new fund managers this year, the same number as in 2019. Most FOs are adapting to the new conditions, with only 1 in 5 saying that they are unwilling to make a large allocation without meeting in person.
Furthermore, family offices have high confidence in the venture industry. The average survey response was 8 out of 10, where 10 was the highest confidence.
We believe family offices will continue investing in VC largely due to the outsized returns generated by startups the last time there was economic uncertainty.