Family Offices Have Quietly Become Startup Funding Powerhouses

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Family offices (FOs) primarily operate as private wealth management firms for ultra-high-net-worth clients. It’s a business model that has paid off for years. FOs around the globe currently manage $5.5 trillion in assets. And — as Avestix shared last month — the family office trajectory is expected to grow 67 percent during the next five years, meaning FOs will manage as much as $9.5 trillion. 

Armed with this kind of financial muscle, it is understandable that, increasingly, many FOs have also emerged as strategic entrepreneurial partners, helping to fund founders hoping to gain footing in the market. 

[Learn why family offices clients prefer alternative assets.]

Last year, this trend captured the attention of PwC, which found that “family offices are major players in the global market for investment in startups.” According to PwC, nearly one-third — 32.5 percent — of the total capital invested in startups in 2022 came from family offices. FO-backed deals that year accounted for more than 10 percent of all startup investments around the world.  

Family offices have been partnering with entrepreneurs for years. PwC examined investment data for more than 6,500 FOs worldwide dating back to 2012 and found that family office startup investments climbed steadily year-over-year for nearly a decade, peaking in 2021 when they funded the launch of nearly 6,100 startups. 

However, as of the following year, FO's enthusiasm for startups tapered off.  

“In 2022, the total capital invested by family offices in startups plunged by almost 45 percent year-on-year to $161.7 billion, while the number of investments fell by more than [22 percent] to 4,736,” according to PwC. 

This may reflect a longer pattern. PwC found as the decade played out, family offices adopted a “more risk-averse approach towards investing in startups.” Whereas FOs once looked for early-stage startups that were presumably riskier, PwC noted that as of 2019, “their focus … shifted to later-stage investments,” suggesting a preference for safer bets.   

What triggered this more conservative shift?

Susan Lindeque, CEO of Avestix, believes that family offices were reacting to the same signs that triggered alarm bells for many venture capitalists at that time.

“Venture capital investments in startups dropped during that period because there was more competition across all asset classes for fewer investment dollars,” she says. “Many startups experienced deep valuation markdowns. Investors were wary of overpaying, especially for founders who had yet to demonstrate profitability or sustainable growth models. Family office investors and VCs were both waiting for price corrections.” 

Now, she says, more favorable market conditions could work in favor of startups seeking family office support. “If the Fed continues to reduce rates, it could lead to increased fundraising, higher valuations, and a more robust startup ecosystem. Family offices — which tend to be more conservative in their investing choices than VCs — may once again feel comfortable partnering with entrepreneurs,” says Lindeque.

As an example of one startup market that has bounced back and now appears to be finding support among family offices, she points to India — a country that traditionally prefers low-risk investments. “According to press reports, there were less than 50 family offices doing business in India as of 2018; now there are more than 300,” she says. “And, as of 2024, family offices in India rank third — right behind Germany and the U.K. — when it comes to investing in local startups.

What should founders seeking funding know before approaching family offices for funding?

Be ready to demonstrate a viable business model — one that meets a genuine market need, advices Lindeque. She also warns entrepreneurs that family office investors will expect to see a strong leadership team with proven track records and specialized insights.   

“It may also be beneficial if startups can show investors that they’ve done their homework and have sustainability plans in place,” she says. “Family offices have evolved to meet the social impact expectations of their clients. The startups they support must be ready to do the same.” 

Finally, she says, advanced technology should be deployed in the startup business model. “FOs aren’t necessarily looking to partner exclusively with artificial intelligence- or blockchain-based companies, but they may expect startups to be using advanced technology in their models,” says Lindeque.

Read Susan Lindeque’s thoughts on steps family offices can take today to ensure they remain competitive tomorrow.