Family Capital spoke this week to a principal of a multi-billion dollar family office based in the US about investments, and particularly investments into venture from a limited partner perspective.
The family office is called NextPoint, but the principal didn’t want to named. The main thrust of the principal’s view about being a limited partner is the importance for external managers to listen carefully to the desires of the investor.
Of course, the investor isn’t alone in his sentiment. As so many family offices that invest indirectly say, too many times that doesn’t happen, which leads to resentment and distrust. That’s a big reason why doing direct investing themselves has proved so popular in the last few years.
"Managers need to be aware that it's more than just taking our capital and giving us quarterly reports,” the principal says. "Managers need to be LP-friendly - and define what that means."
The principal adds: "Many managers are good at understanding their business is investing, but they're less good about understanding they're in a second business, which is the business of managing an asset management firm and that's about the customers, managing operational risk, etc."
The principal adds, NextPoint has invested in many venture funds and often that means more than just being an LP. "Like many other single-family offices when we invest in managers, depending on who they are and the terms of investment, we tend to get involved more - like working with the LP committee, as a senior advisor, or in some cases, we take pieces of the general partnership. We also often use an accelerator model."
Interestingly, NextPoint very much likes early-stage investing, whereas many other family offices tend to get involved further in the evolution of the venture. "We are less inclined to do Series B upwards, and unicorn deals that have $500 million to $5 billion valuations. We want to be in the early stages of tech development,” says the principal.
But what is probably most important is the calibre of the people in the venture you’re investing in, says the principal. “Our goal is to be in the room with the brightest thinkers and investors, the ones who will create very large, positive outcomes. These are the value creators. But the key is to be in those rooms and involved in those conversations.”
One venture manager NextPoint likes is a firm called ff Venture Capital, based in New York City. ff VC appears to have made an effort to better empathize with limited partners concerns. Here’s a link to a piece written by one of their staff members that should resonate with family offices with LP exposure.