Business

India’s family offices ride VC wave as country moves into new cycle of digital adoption

India’s thriving family office community is piling into private markets to tap into attractive returns, with Indian start-ups and VC funds comprising 18% of their overall portfolio allocation, according to a new report published by Trica (a LetsVenture company) in collaboration with EY and AZB & Partners.

The Private Market Monitor report, which surveyed 100 family offices and HNW individuals, found that 40% had doubled their exposure to private markets over the past five years. 

Moreover, as India’s start-up space goes from strength to strength – especially in areas such as fintech and enterprise tech – family offices are increasing their direct investment activities. 

They now account for 47% of private market portfolios, with 32% allocated to PE/VC funds in a sign of growing bullishness to back exciting companies from the start. Indeed, 50% said they preferred seed and Series A deals, compared to 40% preferring late-stage to pre-IPO deals.  

Families like the Kotharis behind the Om Kothari Group have approximately one-quarter of their portfolio invested in start-ups, according to The Economic Times, backing a wide range of companies including GoodMylk and Klub.

Such is the feel-good factor that some 83% of family offices surveyed in the report expect private market investments to account for more than 10% of their overall portfolios in the next five years. 

This enthusiasm is understandable when one considers that 33 of India’s 71 unicorns (compared to 277 unicorns in China and 402 in the US) were born during the first 10 months of 2021. It is estimated that the sub-continent will be home to 125 unicorns by 2025; although that number will surely be higher if this year’s growth rate is sustained. 

As the number of successful companies such as Nykaa, a cosmetics-to-fashion platform, transition from private to public markets, family offices including The Caravel Group, owned by Harindarpal Singh Banga, has reportedly been reaping the benefits.

Shares of its parent company FSN E-commerce Ventures, rose 89% when it was listed on 10th November, giving it a market value close to $13 billion. Prior to its IPO, Nykaa had only raised $100 million in equity.

Nykaa was founded in 2012 by former investment banker Falguni Nayar. She is India’s richest self-made woman with an estimated net worth of $7 billion. 

If India is on the cusp of a new chapter of economic growth, fuelled by digital adoption, it will create more dollar billionaires and spawn a whole new generation of young entrepreneurs setting up family offices to protect their capital.

As of November 2021, the number of unicorns had risen to 78, and as the Private Market Monitor report points out, India is home to 55,000 startups. In the authors’ view, financial, enterprise, consumer and frontier technology industries are likely to be the sectors “which are of the highest interest to family offices”.

One interesting observation made in the report is that, thematically, a new breed of unicorns is likely to emerge. Consumer-focused internet companies like Nykaa and Zomato are part of the last cycle, says the report, while B2B and enterprise tech companies such as Moglix, Zetwerk and Innovacer are the new kids on the block and represent India’s next cycle of digital adoption.

Over 80% of family offices confirmed that the main reason for investing in startups was returns, with 53% citing access to innovation and technology, and 39% citing strategic interest. 

Sohil Chand of Chand Family Office neatly articulated the virtuous circle of making smart investments, generating higher returns and subsequently reinvesting those returns by saying: “We’ve ploughed back gains from our early startup investments back into the private market itself and in that sense, the capital has been recycled.

India’s family office ecosystem is likely to mature at pace in the coming years as families develop greater in-house capabilities to source their own deals within private markets. Three-quarters of the report’s survey respondents said they viewed direct startup investments as the highest conviction opportunities in the next three to five years.

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