At Zero One Hundred Conferences, our events serve as a nexus for Limited Partners (LPs) and General Partners (GPs) from across Europe. Among the recurring matchups in this dynamic landscape, one of the prominent pairings is between family offices and venture capital (VC) funds. But what are the factors driving this collaboration? — is it rooted in risk appetite, flexibility, an inclination for tech innovation, or a pivot away from portfolio diversification trends?
To unravel the complexities of family offices investing in VC funds, we engaged in a conversation with Steve Balaban, CFA, investor, advisor, and Chief Investment Officer of Mink Capital, who boasts a wealth of experience providing counsel and consultations to family offices worldwide.
This is the second part of an insightful conversation we had as we prepare for the upcoming 0100 Conference DACH, where Steve will facilitate a Family Office Workshop.
What is the challenge for FO investing in VC funds versus PE for buyouts?
Buyout or private equity funds focus on more mature companies, resulting in less dispersion of returns for the funds. Whereas VC is more focused on early-stage companies, which results in a greater return dispersion among funds. In VC, this dispersion is going to be a lot more because, in a VC fund, a lot of companies go bankrupt. That being said, the good ones, can get to 50X or 100X the investment. What ends up happening is that investing in the top VC funds has very high returns.
What you find is that not all family offices have access to these top VC funds. The family offices that don't have connections and haven't come from a tech background, might find it very difficult to access top VC managers.
What would be the motivation for a FO to invest in VC funds?
I would make the argument that the number one objective for most families is not to maximize return. I believe the actual goal of every family office is to make sure that the family wealth exists in multiple generations. Not that they get a 22% IRR versus a 17% IRR on this fund. Overall, I believe that the main goal of the family office is to be there for generations. You've probably heard lots of stories where, unfortunately, that has not been the case for some families. I think that's the overall goal, and I think that's how they have to approach their portfolio. So, if a VC can fit well into a portfolio that meets this goal, then that would motivate a family to invest in a VC fund.
With that said, you may see some family offices make decisions for emotional reasons. For example, if a family office made their money in the tech sector, they may be more adamant to invest in Tech VCs. In addition, some VC funds benefit from government programs employing matching mechanisms, which may attract the risk adjusted return profile for VC funds.
What is the level of access Family Offices have to the top Private Equity and VC funds?
In most cases, many family offices lack access to top funds; this privilege often lies with pensions, sovereign wealth funds, or well-connected families. This is a big problem.
How can we make it more accessible?
What Zero One Hundred Conferences is doing is excellent for the industry because it's very difficult for family offices to connect with many PE and VC funds in a short amount of time. It’s a big challenge for families. By doing conferences in different locations, family offices get exposed to various funds, as well as learn about the most important trends in the industry. The conference also allows some of these funds and has them on stage to explain what they're doing. It's a combination of building relations for the long term, and also sharing knowledge of the industry. It's a win-win for everybody.
Mark your calendars for February 28th, 2024, as Steve Balaban takes the lead in facilitating the workshop, 'How Family Offices Invest in Private Equity and Venture Capital in North America, Europe, and Asia,' at the '0100 Conference DACH.' Don't miss the third part of our insightful conversation with Steve, releasing January 10th 2024.
