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Family Office: A New Source Of Funding For Startups Founders should leverage this pool of wealth holders not only for funding but also for business connections and grooming

By Gaurav Singh

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India has the world's third largest startup ecosystem. Emerging economic status, changing consumer preferences, increasing technological capabilities along with a huge market makes it a perfect destination for scalable and innovative solutions. According to stats, today, we have 105 Unicorns with a total valuation of $338.50 billion with the last three years witnessing the maximum number of startups touch the $1-billion valuation mark.

Traditionally, with private and equity investments dominating their portfolios, family offices are now noticing this burgeoning ecosystem, thanks to the hypergrowth witnessed in the last three years. Though late to participate in VC investments, family offices in India are inclined to startup investments because of attractive valuations, unprecedented increase in global liquidity fund, huge opportunities, direct stakes in tech companies, and non-linear returns. The two parameters that usually guide these investments are operating costs and percentage growth. Environment, social and governance factors are also evaluated (for the startups/new companies), before investing. Such thorough evaluations minimize risks and therefore it is not surprising that VC investments are attracting family offices. Moreover, the next generation of wealth holders who are now entering the space of managing legacy family wealth is more open to portfolio diversification, with a comparatively larger risk appetite. There is a paradigm shift being witnessed in the asset allocation from real estate and gold to VC investments.

This new trend spells good news for startups as it opens up yet another funding avenue that they can capitalize on. The fact that family offices, given their high wealth status, have the capacity to accommodate longer investment windows, also provides the necessary support to these startups. Such investments are likely to be beneficial for both the family offices (allowing them the opportunity to make larger profits) and the startups, affording them more time and recognition.

The prerequisite to attracting family office investors is that the entrepreneur should have a workable business plan in place. A running pilot program is a bonus. One also needs to know about the investment preferences of the family office they are approaching. It is a must that the proposed business plan should have clear objectives and goals along with directives on fund utilization and the time period for which the funds are required.

The growing family office landscape spells huge opportunities

Currently, there are over 200 recognized and formalized Indian family offices that help in the transfer of the wealth of ultra-high net worth individuals (UHNI). It is estimated that by the year 2024, there will be over 10 thousand UHNIs in India, with a collective wealth of $700 billion. This bracket will include business tycoons, celebrities, NRIs, digital entrepreneurs, and celebrities. The community is a part of over 50 deals every year since 2015. Family offices, especially those handled by new generations, are flexible and venturesome in their approach to investments. In a bid to gain larger returns, they are willing to invest across sectors and classes, and VC investments have proven to be profitable.

Founders should leverage this pool of wealth holders not only for funding but also for business connections and grooming especially if the family office is owned by a leading business family. Their business acumen combined with strategic direction are sure to help startups scale to global levels.

Gaurav Singh

Founders, JPIN


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