A string of unprecedented events has led to a period of general economic uncertainty worldwide, and as a result, investors have become reticent. Whilst innovation continues to drive countries across the world, startups have taken a significant hit with many struggling with soaring costs and inflation. In the US, funding in tech startups plunged 23% over the last three months to $62.3bn, the steepest fall since 2019 – according to the New York Times. Similarly, European startup funding dropped $14bn (38%) from last year’s $38bn in Q2 alone – according to Crunchbase. Despite this, venture capital (VC) continues to be at the top of the list for family offices, with up to 90% of global family offices reporting that they are participating in VC investments. Now, startups are seemingly turning to alternative routes of funding, namely through family offices and their UHNW members, whose strong appetite for new opportunities could provide a vital lifeline for struggling firms amidst the current climate.

In today’s market, deal-making activity has slowed but not come to a complete halt. Gaurav Singh – industry expert and founder of global startup investment banking platform, JPIN – explains that investors are simply being careful, taking their time to find the right investments to add to their portfolios. It seems that many startups raising capital are viewing family offices as favourable investment partners due to the advantages that they can offer over other investment routes. This includes their ability to act quickly and take advantage of market dislocations and consider opportunities with attractive risk-return profiles, whilst institutional investors may have less flexibility in these areas. Family offices can also hold assets beyond the eight-to-twelve year timeframe that institutional investors typically opt for, and their lean organisational structures can also allow for expedited decisions without any long-winded and formal committee approvals.

In recent years, family offices have significantly grown in size despite the current global market conditions. Industry experts have noted that the number of single-family offices has risen by over 40% since 2008 and has combined investable assets of up to several trillion dollars. As a result, their influence on private markets has grown with a report from the Family Office Exchange (FOX) revealing that portfolio allocations to private equity (PE) are up 5% from this time last year. The same research found that 65% of family offices are planning to overweight PE, which means that family offices could assist with a bounce back in this sector in the next year and beyond.

Commenting on the rise of family offices as a new source of funding for startups, and how these businesses can attract family office investors, Singh said:

“It appears family offices could come to the fore to fill investment gaps in the market at a time when valuations are dropping and confidence from some institutional investors is decreasing. This increased activity from a different branch of the investment sphere could provide startups with an injection of much-needed capital which will also help to stimulate the economy during these challenging times.

“Research shows there is a clear focus on private equity investment for family offices – with 65% planning to overweight funding in this area. From our experience working with both family offices and startups, the key to attracting family office investors is that the entrepreneur should have a solid and detailed business plan in place – with a running pilot program being a bonus. They should also be aware of the investment preferences of the family office they are approaching. The proposed business plan should have clear objectives and goals along with directives on fund utilisation and the time period for which the funds are required.”