Investment

European family offices aren’t doing enough to back venture locally

Innovation in Europe has a problem and there aren’t enough family offices to solve it, according to Yves Bonzon, chief investment officer at banking group Julius Baer.

“The vaccine controversy highlights the lack of coordination, the lack of industrial policy. It shows a lack of European interest and support for innovation.”

The influence of the new rich can be seen in our list of proactive family office seed investors in Europe

Family offices can step into the breach but this normally requires the involvement of principals, plus tax perks and subsidies for key sectors from governments.  

The German BioNTech vaccine was backed by a German family office run by Thomas and Andreas Strüngman and Hong Kong’s Jebsen Group family office. 

But Bonzon says BioNTech needed to travel to the US for capital. The Bill & Melinda Gates Foundation provided grants and US pharmaceutical giant Pfizer agreed a crucial joint venture, backed by a UK purchase of 30 million doses.

Intermediaries say 20% of European family offices will consider offering seed finance, known as micro-VC in the US. But they are cautious, and easily eclipsed by later-stage venture capital and corporate venture funds. Angel networks play a role but they are still a cottage industry.

According to Keith Johnston, chief executive of SFO Alliance: “Family offices are interested in direct VC deals but not so much seed capital which involves a lot of work to invest in a small amount of money. They are slow to trust and wouldn’t generally commit to a deal below $2 million.”

An adviser to a Nordic family office said: “Providing seed capital doesn’t rank highly for my client although more mature VC opportunities are fine”

The British Business Bank said: “Fewer UK companies with high growth aspirations attract early-stage equity funding at scale, compared to their American competitors.” 

US family offices tend to get excited by the thought of outsized returns from top decile seed returns. But European equivalents tend to fear frequent failure.

Consulting firm Mercer says family offices should invest through funds to reduce their risks. This means promoters end up relying on hit-and-miss family office recommendations from lawyers, investment bankers.

Family offices can back accelerator funds that brainstorm ways to achieve growth for a string of start-ups. The best-known accelerator is run by Y Combinator. Goldacre, a UK family office, is involved in this sector, along with other startups 

But Goldacre is led by Leo Noe, a highly-proactive principal. People like him are less cautious than the majority of principals.  

Family Capital’s list of family offices prepared to get involved with early-stage finance most certainly exist, but they all need careful wooing.

US family offices more often want to recycle their capital into direct deals or co-investment.

According to a recent survey by Silicon Valley Bank, a staggering 87% of US family offices are interested in seed. One respondent said: “What we want to do is get in early and capture incredible growth.”

Early-stage funds in the US grew in size by 32% a year in the five years to 2016, against 14.7% in Europe, according to a report published by business school, INSEAD. 

Research by VC manager Atomico and Talis Capital has confirmed that a recycling of capital by entrepreneurs is finally starting to make an impact on the European VC market. 

Last year, Atomico said investors in an $820 million VC fund included executives at Adyen, Klarna, Tranferwise, Spotify, Skype, Supercell and Zoopla. 

Proactive principals are behind Souter Investments’ successful push into private equity and a large investment in farming by Sir James Dyson’s Weybourne. 

Elsewhere, seed and early-stage investing can appeal to the next generation of investors who seek returns for the greater good through ESG investment strategies.

Toniic is a federation of 400 family offices dedicated to impact investing. It said: “Such investments provide the clearest connection to our intention of contributing to solutions to the big world problems.  And they provide capital to those who have traditionally lacked access.”

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