Family Office Funds are generally known to be risk-averse-simply because their mandate is to preserve capital for future generations. Most startups seeking second and third round capital infusions typically aim their pitchbooks towards venture capital firms, but many are missing hidden sources of capital: the family office. Often viewed as the bastion of out-sized family fortunes old and new, family office platforms are presumed to be 100% focused on preserving capital for coming generations. Bedrock investments are traditionally weighted towards real estate, then private equity, then a traditional asset class mix of fixed income products, and to a lesser extent, divident paying equities. But, as interest rates continue to hover at historically low levels and as popular family office fund allocation strategies to alternative investments such as real estate and private equity become ever-more crowded, and stock prices continue to ‘melt up’ , causing each of those investment strategies to become less appealing, family office platforms that seek to capture additional alpha are boosting allocations to tech startups and other similar silos.
“It makes perfect sense for startup entrepreneurs to fully understand the family office funding ecosystem and the respective risk profiles of folks looking to deploy outsized assets under management,” says Jay Berkman, Chief Operating Officer of Prospectus.com LLC. Added Berkman, “Family office funds now represent one of the biggest pockets of cash, as the new regime of family offices include a broad spectrum of newly-minted multi-millionaires from the tech world and from the private equity world. Add to the calculation that new generations of uber wealthy families are now taking the helm, most of these ‘next generation’ folks ‘get the joke’ when it comes to tech investing.
Courtesy of Chicago INNO, “With traditional venture capital, angel investors, private equity and newer models like equity crowdfunding, entrepreneurs today have more access to capital than ever before. Now, add to this list: the growing prominence of family investment offices.
According to PitchBook, the number of direct investments by family offices in startups has almost doubled in the last five years. According to this Ernst & Young report , there are now more than 3,000 outfits globally managing the money of a single family — half of which were created in the last 15-20 years.
Single, or multi-family offices, which function to help preserve, grow and transfer wealth across generations, aren’t new. What’s different about them now is that they are increasingly staffed by former private equity and hedge fund managers, with existing networks in the startup world, that are more familiar and comfortable with entertaining these kinds of risk investments.
But what are some of the subtle differences between traditional models of funding and family offices — and what should startups know before approaching one or the other?
“One way to think about the differences between a venture capital fund, a family office, and an angel group (like Hyde Park Angels) is to look at how they make their investment decisions. Venture capital firms deploy investment capital on behalf of limited partners who invest in the fund, but don’t choose the companies. Family offices could be thought of as made up of limited partners who are part of the family (or are related closely in some way), and they invest their own capital. Finally, an angel group curates investment opportunities for member investors who could be considered limited partners, and each chooses their investments,” said Alida Miranda-Wolff, Director of Platform at Hyde Park Angels.
On the other side of the spectrum are startups, many of which in Chicago have found success in finding, pitching and receiving support from family offices.
Family Office Funds Tilt to Tech Startups- Chicago Style
Chicago Inno’s 2017 Family Office Index
Anderson Pacific Corporation | Kenneth D. Anderson
Industry focus: Telecommunications, Media and SaaS
Notable investments: an Illinois based data center, a fiber optic network, content delivery network, etc
Avocation Investments | Rich Padula & Jeff Kleban
Industry focus: B2B technology products and services, focused on Midwest
Notable investments: Geofeedia, TurboAppeal, Public Good Software, Shipbob, FourKites
Breslow Forsythe Group | confidential/not available
Industry focus: Business services, Consumer goods, Distribution, Industrials, Manufacturing, Pharmaceuticals, Logistics, Real estate, Healthcare, Gaming, and Amusement companies
Bluestein & Associates | Abram (Bram) Bluestein & Andrew Bluestein
Industry focus: Seed and Series A food, Retail and B2B technology businesses, primarily based in Chicago
Notable investments: Eat Pak’d, Mac & Mia, Luxury Garage Sale, Eastman Egg Company
Certare Ventures | Art Wong
Industry focus: Real Estate, Digital/IT
Chaifetz Group | Richard Chaifetz
Industry focus: Business and commercial services, Consumer branded products and services, Financial services, Healthcare products and services, Media and entertainment, Niche manufacturing, Transportation and logistics
Concentric Equity Partners | Jennifer Steans
Industry focus: business, consumer, financial and technology-enabled services
Notable investments: Catastrophe Solutions International (St. Louis-based)
Cooper Management | Carey Cooper
Industry focus: typically live in consumer industry, but looking at all sectors
Notable investments: Shiftgig, Enjoy Life Foods (Sold to Mondelez), Remote Year, LYFE Kitchen, and Free Flow Wines
Diversified Capital | Larry Levy
Industry focus: Commercial Real Estate
DRW Venture Capital | Don Wilson & Kimberly Trautmann (investment officer)
Industry focus: Fintech, Digital/IT
Notable investments: Shiftgig, Bolstr, SpiderOak, OpenFin and Droit Financial Technologies(last two are New York-based)
Duchossois Capital Management | Craig Duchossois
Industry focus: Private Capital, Real Estate, Funds, and Public Securities.
Notable investments: Echo360, Smart Signal, Brivo, Infoblox
Equity Group Investments | Sam Zell
Industry focus: Energy, Logistics, Manufacturing, Transportation, Communications and Real Estate
Fulcrum Investing | Kevin van Eekeren
Industry focus: Mobile, Social Media, E-Commerce, Point-of-sale, “but [they] try to keep an open mind so let us know about your idea!!!”
Notable Investments: ConceptDrop, Eastman Egg Company, Luna Lights, Page Vault
Harrison Street Real Estate Capital | Christopher & Michael Galvin
Industry focus: Real Estate
Huizenga Capital Management | Wayne Huizenga & David Bradley (investment officer)
Industry focus: Built Waste Management
Notable investments: Eved Marketplace
Longview Asset Management | Crown family
Investment focus: Banking, Manufacturing, Marketing, Food, Education, Retail, and Hydrocarbon Infrastructure.
Notable investments: eBay’s enterprise unit
McNally Capital | Multi-family
Industry focus: Industrial, Food & beverage, Aerospace, Healthcare, Energy, Logistics, and Packaging end markets
Notable investments: Genesys Aerosystems
Muinzer Ventures | Family office/VC arm of South Street Capital
South Street Capital is a commercial real estate firm. Its venture arm has invested in Chicagoland startups for over a decade.
Notable investments: CityBase and Seasons Soda
PSP Capital Partners | Penny Pritzker
Industry focus: Business services, Niche manufacturing, Value-added distribution, Food and agribusiness
Notable investments: Halo Branded Solutions (sold in August 2016)
Promus Holdings | Andy Code
Notable investments: Quality Control Corporation of Harwood Heights, Illinois
Romar Partners | Scott Wald and George Colis
Notable Investments: UrbanBound
Sawdust Investment | Michael Krasny
WarHawk Fund | Peter Layton
Industry focus: Software
Notable investments: Pinpoint Software, Slipstream (Wiscons