Here's Why Family Offices Are Keen To Invest In Startups
Family businesses need to be agile to understand risk to their investments
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Family businesses, no doubt, in the coming times will become just as popular as venture capitalists and angel investors. In fact, family businesses have been empowering startups through funding for a long now.
For Rishabh Mariwala, co-founder and director, Sharrp Ventures, funding startups holds potential.
Mariwala stated that tech funds and consumer funds, which his family office created, focused funds. Be it personal care products company like Nykaa, mattress company or beer company and currently edtech startups, Mariwala has involved mixed businesses in his investment plans over the next six. The challenges of medical or other investments were an eye-opener to bring transition in his strategy. This influenced his team to identify consumer-oriented stuff to be prioritised on the basis of business understanding.
Scope of growth
The entire ecosystem has evolved currently and the passion of entrepreneurs is appreciable. Addressing the types of entrepreneurs who looked for investment, Benaifer Malandkar, CIO RAAY-Patni Family Office, pointed the contrast. Adding value to businesses by establishing alignment followed by evaluation of other parameters has been Malandkar's perception towards startup investment.
Consumer segment, fintech and digital content have been among some of the themes selected by RAAY team. Post the pandemic, the company has included AI, IoT and healthtech spaces as they are gaining attention considering the higher scope of innovation being experimented with.
Trends and initiatives taken to support startups
Private equity evolved in 2007 and Kotak was the first one to be launched. It was totally a fresh concept which grabbed the attention of investors. Rajmohan Krishnan, principal founder and managing director, Entrust Family Office, believes, "In Indian market, there are just a few investors who want to take risk and that too, ones with success track record." He further quips most of the investors are interested in the allocation of funds for second and third generation businesses. According to Krishnan, the mature investors are not in the favour of the asset class and still in the contemplation phase.
He further exclaimed that his team essays the role of board observers as a part of investment. Tracking business performance and extending assistance to the organization. The company can stay relieved as informed decisions are made when investors get involved in their operations. Thus, family business investments can add value to the business growth of startups by and large.
ROI for family businesses
The reasons for pursuing the role of family business investment influence the entire process along with the understanding of startup ecosystem. Munish Randev, founder and CEO, Cervin Family Office & Advisors, asserted that returns are mostly the intent for some families to invest while others may just look for equity returns. Getting acquainted with the behaviour of asset class, experience and understanding the scaling up process of startups are some of the learnings for the family.
Randev further elaborated that intent of family business investment can also be to expand their main business. At the same time, being the part of board management or becoming a board member depends on the ticket size of an investment. Randev opined, "Return becomes the outcome of multiple factors and it is not a standalone figure."
Collaboration factor amidst investment
Mariwala clarified that collaboration scope after family investment depends on the business plan or objective. Privately held businesses are likely to have linkages or collaborate when they participate in VC or PE funding.
The Bottom Line
The transition of businesses is not under human control, so, the disruption can be expected. Family businesses need to be agile on understanding risk to their businesses. Allocation of wealth and moving them at a safer space can address the situation of business disruption. In short, ideation, knowing the risks and investing rightly are essential ways to ensure smooth operation of family business investment.