With rising volatility in public markets, geopolitical uncertainty and higher inflation, the second half of 2022 saw family office (FO) interest in venture capital (VC) investing slow significantly.
According to The Future Of Family Offices In Venture (the fourth chapter of Campden Wealth and SVB Capital’s Family Offices Investing In Venture Capital Report), limited partners (LPs) paused deploying capital to funds and direct investments, while VCs also slowed their pace of investment.
However, the report also found that FOs continue to invest in technology, with backing for artificial intelligence / machine learning, alternative care, blockchain solutions and digital assets all enduring areas of interest.
“This report has generated a number of interesting findings,” says Dr. Rebecca Gooch, Campden Wealth’s senior director of research. “For instance, family offices are avid investors in healthcare and technology, and the majority of those we surveyed believe that artificial intelligence and machine learning-based companies will emerge and become industry leaders in drug discovery.
“Most family offices also believe that, by 2025, we will have a fundamental understanding of how cancer originates and novel ways to treat and eradicate many cancers.
“These are the types of incredible ventures that family offices today are backing, and just a few of the interesting findings that emerged from this report.”
The research – which takes a deep dive into the composition of FO venture portfolios, based on data collected from 139 ultra-high-net-worth family offices and 25 interviews with families and VCs – found that the current macro environment is causing FOs to slow their venture investments.
“Fears over a forthcoming recession have made some family offices more cautious.”
However, FOs expect to opportunistically grow their venture portfolios given lower valuations.
“What happens in private markets tends to follow what happens in public markets and fears over a forthcoming recession have made some family offices more cautious,” says Dr. Gooch. “In turn, they are rebalancing their portfolios to shift towards more preservation-oriented investments. With that said, there has been a wider shift towards growth-oriented investments in recent years, so a limited reduction in VC allocations is unlikely to persist long-term.”
Growth areas of venture investments interest include Environmental, Social and Corporate Governance (ESG) and impact investing. So far this year, 83% of participating FOs expect to be engaged in these investments (up from 79% in 2021 and 47% in 2020). The average global FO expects to allocate 29% of the venture portfolio to ESG or impact investing (up from 20% in 2021).
Meanwhile, climate change has climbed the priority list for FOs and is now the top target area.
“Climate change has become the number one ESG-related area that family office VC investors are targeting,” says Dr. Gooch. “US VC climate tech fundraising increased 45% to $26 billion and investment increased 80% to $56 billion between 2000 and 2001.”
Also increasingly garnering attention are the fields of tech and healthcare with family offices paying attention to leaders in drug discovery and blockchain solutions, among others.
“Despite the challenging macroeconomic environment, investment into healthcare has bucked a recent trend we’ve seen regarding family offices’ slowing investment in venture capital,” says Dr. Gooch. “Spurred by the pandemic, and with a history of favourable returns, 2021 set a record for investment into US and European healthcare companies. Following on in 2022, investment remained robust with biopharma and HealthTech attracting the most funding.
“In a similar vein, technology has also long been an area favoured by VC investors given the rapid advances seen within tech and the sizeable returns the sector has produced.”