Deals in the Last Quarter: Family-backed capital holds up despite a falling venture market

Family-backed capital, represented by family offices, family-backed venture groups, and principal investment offices, continues to flow into venture, albeit at a slowing deal rate, during the first quarter of 2020. 

These groups backed directly 173 ventures worth a total of $8.4 billion in the first three months of 2020. The number of deals backed by family-backed capital fell in February (49) and March (48) on the back of the growing coronavirus pandemic. But the value of total direct deals held up well in March, with family-backed capital committing to direct deals worth a total of $3.7 billion in the last month, more than the $3.6 billion in January.  

However, there were some weighty direct deals done in March, which pushed the total figure up, including $500 million into the food-tech group Impossible Foods and $200 million into a transport tech group called Via. 

Altogether, Family Capital surveyed 155 family offices, family-backed venture groups, and principal investment offices doing direct deals in the first quarter of 2020. 

See tables below for family-backed venture direct deals during the last three months. 

Family-backed capital might have so far held up relatively well during the first quarter of 2020, but the total number of deals (all venture backing investors) has fallen off sharply in the last month in a year-on-year comparison. In March 2019, the total number of businesses raising venture from seed to Series H, including Initial Coin Offerings and convertible notes, was 1,978, compared with 1,026 in March 2020. 

Also, the latest March figures aren’t conclusive of where venture and family-backed venture investing will go over the next few months as the coronavirus pandemic intensifies. Many of the deals in the last two months were probably agreed at least a month in advance – so commitments were in place before the crisis really got underway. Venture is traditionally a lagged indicator, compared with public markets. 

The next two months should provide some more useful figures in terms of the underlining trends, with an expected big fall off of commitments and the number of deals ahead.  

There are a number of considerations perhaps worth mentioning in terms of family-backed investors in venture going forward given the crisis, these include:

Investment professionals will be examining their portfolios in detail and be keen to preserve as much liquidy as possible as they de-risk portfolios. Cash is king in this crisis, not illiquid assets like venture. The merger & acquisition market is also drying up, which will make venture even more illiquid.  

See Family Capital’s interview with Pascal Levensohn, about venture capital, family offices, and the coronavirus pandemic

Defensive investments are likely to grow as investors will be keen to back ventures hit hard by the crisis, but are otherwise viable businesses and will come back strong when the recovery gathers pace. Given previous levels of commitments in a booming market, few investors will want to see these businesses go to the wall. 

All investors will move to quality and sectors likely to be particularly strong in the recovery phase will include biotech/healthcare – a traditional favourite of family offices – gaming, virtual reality, and other online services. In contrast, fintech might suffer as traditional financial services groups fair better than they did during and after the financial crisis of 2008. Travel-related venture might also take longer to recover and be less enticing. 

So far, there’s not much evidence that family office money is buying distressed assets – if they are it’s being kept very quiet. That said, the power play between investors and venture groups will swing massively in favour of investors during the crisis and for some time afterwards. For much of the last five and more years, it’s been the other way around. This will mean investors like family offices will be able to acquire bigger slices of venture businesses at cheaper prices, particularly those investment offices with liquidity to do so. 

The venture investment world tends to lag what’s happening in public markets. And the figures above show this trend. So expect a much bigger fall-off in activity over the next few months. The recovery will also be slower, as the sector found after the 2008 financial crisis. 

To access the Tables in full, please click on its content and scroll right or left with your mouse. Or scroll down to the end of the Table and use the right/left scroll bar there.

March 2020

February 2020

January 2020

* family offices, family-backed venture groups, and principal investment offices