How do European single family offices approach venture capital and what is their exposure to the asset class? Data suggests the true level of investment is under-stated by the actual figures. Highworth, a research firm, peers through the fog to see what the picture is.

(An earlier version of this news item appeared in WealthBriefing, sister news service to this one. The European single family office sector is not as well covered as the US one has been, so we hope that the insights here will interest readers in North America.)

Venture capital is a hot asset class at the moment and in the opinion of some commentators, it needs to take up a larger part of wealth managers’ menus, particularly in the case of families able and willing to adopt a long time horizon. However, there have been concerns voiced from time to time about the amount of “dry powder” (capital available to be committed in VC). 

This news service has decided to drill into the details of the information collected by Highworth Research, the data and information service with which we have an exclusive relationship, to find out more about what single family offices are doing in the VC space. Much of the information shown here applies to Europe, a region that tends not to have the same level of media coverage around VC as is the case in the US, for example. The article comes from Alastair Graham, Highworth’s founder. To find out more about that business and to register for its data, click here.

Family offices’ investment in venture capital in Europe was $5 billion in 2018 according to research commissioned from Dealroom by Talis Capital, a UK multi-family office which is focused on supporting late seed and Series A & B venture rounds for entrepreneurial young companies. According to the Talis Capital research, $5 billion out of a total VC investment in Europe in 2018 of $34 billion was contributed by the private wealth sector, principally family offices and business angels. 

SFOs are larger VC investors than is commonly recorded
However $5 billion is likely to be the value sitting on the surface, and the real number is likely to be much higher for two reasons. The first is that if the difference between the $34 billion total and the $5 billion attributable to the wealth sector is accounted for primarily by VC firms, many such firms will depend on single family offices for an important proportion of their funding. 

The second reason is that, as is well known, many single family offices prefer to fly under the radar and to undertake their VC investments in a discreet and confidential manner. The value of their deals in the asset class are frequently undisclosed. Therefore, family offices are probably contributing much more significantly to VC investment in Europe than is commonly recorded.

Family offices’ investment in VC varies throughout Europe
Furthermore the picture painted by some analysts of the role played by family offices in European venture capital is often too imprecise because it reflects a panoramic Europe-wide lens and fails to take account of differences between the level of VC investment by family offices in different European countries. 

The Single Family Offices Database published online by Highworth Research is able to show the proportion of single family offices investing in each asset class of significance in each country in which SFOs are represented outside the US. For the European region, where the database currently has profiles of nearly 700 single family offices, there are distinct differences between countries in their preference for VC investment. Venture capital investment is undertaken by the following percentages of single family offices in these European countries:

Denmark                         38%
Finland                            60%
France                             71%
Germany                         47%
Italy                                  54%
Luxembourg                   19%
Norway                            21%
Spain                               38%
Sweden                            37%
Switzerland                    31%
United Kingdom           39%

The UK is thought by some to be a leader in European VC investment but in fact comes halfway down the list, fifth out of 11 countries, when family offices’ VC funding activity is examined. 
 

Non-US SFOs and venture capital
In all countries outside the US where single family offices are represented on the Highworth-WealthBriefing Database, a total currently of 866 SFOs, 329 SFOs or 38 per cent, invest in venture capital. VC investment has become more popular among single family offices for good reasons, and for young private companies seeking funding in their early stages of life, a financing relationship with a family office has a compelling logic.

Family offices offer young companies the benefit of patient capital, often with no required exit date. Long-term, illiquid investment is well suited to family offices. Additionally, SFOs often offer faster decision-making, with short lines of communication and little bureaucracy. They are often able to bring valuable advice on growth strategy based on their own experience of significant success in the same business sector, and their knowledge of key sales channels and influential contacts.

Many family offices find their own deals based on their knowledge of particular industries, but many others need to go through funds to access deal flow, to delegate the often tricky due diligence process, and to provide diversification of risk through gaining access to investment opportunities in multiple sectors.

Healthcare and digital technology are favorites
Looking at the single family offices which invest in VC on the database, young companies in healthcare and in technology are favorite targets. Here are some of the larger single family offices in the EMEA region which are willing to commit significant amounts of capital to VC:

Examples of SFOs undertaking VC invest in healthcare & digital tech
Arkin Holdings, Israel, is the family office of Israeli billionaire Mori Arkin who made his fortune as a manufacturer of generic pharmaceuticals. He invests in early and mid-stage companies in a number of critical therapeutic fields and medical technology companies, mostly in Israel. Total AuM is between $500 million to $1 billion.

Waypoint Capital, Switzerland, is the family office of Ernesto Bertarelli and his sister Donata, with AuM in excess of $15 billion. They undertake their VC investments in life sciences through their affiliates Gurnet Point Capital in the US and in technology through Forestay Capital in Geneva. 

Djursholm Invest, Sweden, is one of seven family offices belonging to the Persson family who made their fortune from the H&M chain of fashion stores. Djursholm invests in numerous early stage companies in the digital tech sector. Total AuM is estimated to be $1 billion to $2.5 billion

Freelands Family investment Group, UK, is the family office of Elisabeth Murdoch, one of Rupert Murdoch’s six children. Freelands’ VC investments are not surprisingly directed at the digital media sector. Total AuM is between $100 million to $500 million

NXC Corporation, Belgium, is the family investment company of South Korean video games magnate Kim Jungju, which is oddly based in Belgium due to the belief that there are significant investment opportunities in Europe. Although Kim’s private equity investment is principally in Europe, his VC investments are mostly in digital tech in South Korea. Total AuM is over $7.7 billion.