India’s startup growth story is that of economic fairytales. From just a handful of startups in 2014 to over 50,000 in 2020, India today boasts of the third largest startup economy in the world.
Startups — like any other nascent entrepreneurial venture — are perennially in need of financing, and most founders are constantly exploring fundraising strategies that include venture capital (VCs), angel investors, family money, and much more.
However, there is one untapped and rarely explored route that startups are missing out on — family offices.
Today, family offices aren’t just private wealth management entities that cater to HNIs and UHNIs. In fact, their portfolio covers a vast expanse of services, and startups are beginning to enter their ambit.
Why go down the family office route?
Fundraising is probably the most crucial aspect of any entrepreneurial journey, and family offices are increasingly in the position to help startups with this.
While venture capitalists — a dream that many startups are always chasing — raise funds with a 10 to 12 year period in mind, family offices are in the position to provide long-term capital.
This sort of patient or evergreen capital can help startups focus on long-term growth instead of trying to quickly earn a return on investment (ROI) for their investors.
Family offices can also help startups at any stage of their business journey. Whether it is angel investing, seed funding, or early-stage, FOs have it all covered.
There is flexibility in terms of the capital acquired, and investors who come through the startup route have a much greater risk appetite. Hence, startups are not forced into providing sub-optimal exits and can focus on long-term strategy.
Besides supporting with funding, family offices are in a unique position to help startups and entrepreneurs with other business expertise. Most family office founders were once entrepreneurs themselves, and they have a strong grounding in finance, banking, and other business sectors.
Hence, their in-depth knowledge and decades of experience could easily benefit startup CEOs. FOs can be used as a sounding board for business strategy ideas, and they can also provide advice on relationships with investors.
Senior management at family offices can also leverage their own network and legacy relationships with clients and business houses to help startups founders navigate the corporate world.
Through their years of entrepreneurship and investing experience, FOs have built a trusted network of mentors, business owners, and directors that can enable startups to scale rapidly. A relationship with a family office can thus, be extremely beneficial for startups because it turns into an effective network-building exercise.
Family offices have a slew of ancillary services that startups can leverage to their advantage. For example, a small startup may not always have the resources to hire a full-time CFO. In such a scenario, a family office can provide for an outsourced CFO service.
This would mean that a startup could have all the benefits of a full-time CFO at a much-reduced cost. Also, an outsourced CFO’s knowledge spans multiple industries, and hence, can be an added advantage for a startup that is still finding its feet in the corporate world.
Besides, FOs also have strong business advisors who are capable of navigating M&A deals and can take care of a slew of other tasks. Be it handling foreign currency, setting up an escrow account, or monitoring the health of investments through MIS systems — FOs have myriad service providers all under one roof.
Startups and family offices can thus forge strong symbiotic relationships, and currently, this territory is largely unexplored, especially in India.
In fact, according to Crunchbase, in 2018, 193 family offices made over 1,700 venture deals. This statistic is proof of the untapped potential that family offices hold for guiding a startup’s growth.
Not only can FOs help startups with patient capital at various stages of growth but can also provide an entrepreneurial orientation. Family offices can be the friend, philosopher, and guide that scores of startup founders are often in need of through their challenging journey of entrepreneurship.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YS.)
