Inaugural Report “Family Offices Investing in Venture Capital - Global Trends & Insights” examines the role of family offices’ venture capital strategies in recent years
SANTA CLARA, Calif., August 11, 2020—SVB Financial Group (NASDAQ: SIVB), the parent company of Silicon Valley Bank, today released the “Family Offices Investing in Venture Capital - Global Trends & Insights Report” in partnership with Campden Wealth Research. The report looks at family offices’ investment levels, performance, expectations, barriers toward venture investments, and their expectations for how the market will evolve amid COVID-19.
“In the last decade, family offices have emerged as a significant source of capital fueling innovation globally. They are increasingly more open and active in venture, particularly in early-stage companies through direct investments and funds,” said John China, President of SVB Capital. “Our research with Campden Wealth shows that family offices are seeing favorable returns in the asset class, and they are acting as strategic advisors and champions to the startups they invest in. We expect to see more family office investors in the venture ecosystem, collaborating and syndicating with like-minded investors and providing a differentiated pool of capital to founders.”
“We are facing uncertain times due to COVID-19 and an encroaching global recession. In response, family offices are showing their strength as nimble, responsive, and patient investors, often with cash reserves to carry them through turbulent times,” said Dr. Rebecca Gooch, Director of Research at Campden Wealth. “At present, many family offices are taking a cautious approach to weather the storm, both with their VC investments and overall portfolios. Families need time to digest the ramifications COVID-19 will have on financial markets and their portfolios. However, some are bullish given current market conditions and are waiting to capitalize on opportunistic deals, and in the VC realm, lower entry valuations. These families are eyeing early-stage investments and funds that focus on Seed and Series A stage companies, along with placing greater emphasis on quality managers and diversification to reduce risk.”
Following are the key findings from SVB and Campden Wealth Research’s global report, which surveyed 110 representatives of ultra-high net worth (UHNW) families with experience in venture investing between October 2019 and February 2020. Additional COVID-19-related input was collected in Q2 2020. The responding single-family offices had an average of $797 million assets under management (AUM) and the responding multi-family offices had an average of $1.5 billion AUM. The full report is available at svb.com/family-office-report-2020.
Family offices’ venture capital investment is on the rise
Over the last decade, family offices have been increasing allocations to venture and building in-house venture investment capabilities, primarily stemming from strong historical returns. On average, venture investments constitute 10% of participants’ overall portfolios, divided between direct investments (54% of the average VC portfolio) and funds (46%).
Co-investing is a favored route to share infrastructure and expertise, with 92% of family offices co-investing alongside other families and venture funds. Co-investments make up 19% of the average family office venture portfolio.
Average venture returns are 14%
Family offices’ venture portfolios returned an average of 14% in the 12 months prior to the survey. Fund investments generated 16% returns and direct deals where family offices had minority stakes returned 17%. These returns met or exceeded expectations for more than 85% of respondents.
Amid COVID-19, family offices remain optimistic about venture investing
Sixty-three percent of family offices said capital allocation to venture will stay the same or increase despite the pandemic. However, family offices may deploy capital more slowly, place greater emphasis on quality managers and move further toward sector diversification.
Average annual family office venture investment includes 10 direct investments and eight fund investments
On average, annual company deal activity included 72 company pitches and three commitments, with an average investment of $6.1M. For funds, this included 41 pitches and four commitments, with an average investment of $7.9M.
Family offices favor early-stage venture
Ninety-one percent of family offices reported being most active in early-stage venture investments, which have delivered strong returns. With startups seeking out patient capital and smart money, family offices deliver by providing strategic guidance (72%), participating on the board (70%) and facilitating connections to other investors (70%).
Family offices are most active in direct deals and funds
Seventy-six percent of family offices invest directly in companies, and it is most common for them to source their own opportunities (26%). North America (81%) and Europe (53%) are the hotspots for deals, and there is significant interest in Israel. Prior to COVID-19, family offices reported the main barriers to direct investing were competition for deals (28%) and high valuations (22%).
Eighty percent of family offices invest in funds, reporting that they are an efficient way to outsource deal flow and due diligence, with sector-focused funds (80%) and sub-$100m funds (71%) as the most popular. One-third of family offices believe the highest returns in the next decade will come from emerging managers. Prior to COVID-19, the most significant barriers to fund investing were access to compelling managers (23%) and valuation levels (18%).
Growing interest in ESG investment
Nearly half of family offices engage in impact and ESG VC investments (47%), and interest in this sector is growing particularly among the next generation of family office leaders. Among these investors, the most popular areas for impact and ESG investments are healthcare and wellness (65%), agriculture and food (63%), and energy and sustainability (63%). North America is heavily invested in healthcare and wellness (74% versus 59% for rest of world).
For additional survey results, please visit: svb.com/family-office-report-2020.
About SVB Financial Group
For more than 35 years, SVB Financial Group and its subsidiaries have helped innovative companies and their investors move bold ideas forward, fast. SVB Financial Group’s businesses, including Silicon Valley Bank and SVB Capital, offer commercial, investment, and private banking, asset management, private wealth management, brokerage and investment services and funds management services to companies in the technology, life science and healthcare, private equity and venture capital, and premium wine industries. SVB Capital oversees and manages more than $5.5 billion of investment assets across a family of venture capital funds. SVB Capital has a global institutional investor base including family offices, foundations, endowments and pensions. Learn more at www.svb.com.
SVB Financial Group is the holding company for all business units and groups. ©2020 SVB Financial Group. All rights reserved. Silicon Valley Bank is the California bank subsidiary of SVB Financial Group. Silicon Valley Bank is a member of FDIC and Federal Reserve System. SVB, SVB >, SVB Financial Group, Silicon Valley Bank, Make Next Happen Now and the chevron device are trademarks of SVB Financial Group, used under license.
About Campden Wealth
Campden Wealth is a family-owned, global membership organisation providing education, connectivity, research and networking opportunities to families of significant wealth, supporting their critical decisions, helping to achieve enduring success for their enterprises and family offices, and preserving their family legacy.
Campden Research supplies market insight on key sector issues for its client community and their advisers and suppliers. Through in-depth studies and comprehensive methodologies, Campden Research provides unique proprietary data and analysis based on primary sources.
Campden Wealth publishes the leading international business title CampdenFB, aimed at members of family-owned companies in at least their second generation.
Campden Wealth owns the Institute for Private Investors (IPI), the pre-eminent membership network for private investors in the United States founded in 1991, and the Campden Club, a global membership network for families and family office executives. Campden further enhanced its international reach with the establishment of Campden Family Connect PVT. Ltd., a joint venture with the Patni family in Mumbai in 2015.
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