I see family office after family office chasing venture capital expecting it to be a high risk, high reward game. And many of them think that they can avoid the risk and grab the reward. There is no such thing. Venture capital produces amongst the lowest risk adjusted returns of any asset class. Gold, Sensex, bitcoin, real estate are all generators of better return.
In fact I wonder why family offices look at this asset class at all. Those who understand venture investing are not going to teach them or share their deals with them. They won’t even allow such investors onto their LP table. Indian families are among the most painful investor category anywhere. Few have adequate intellectual depth and some think they are engaging in money lending.
It is very well known that good venture funds will NOT take money from family offices unless the individuals there have merit and substance. Of late I find that these family offices have random low quality hirelings calling up funds seeking investment opportunities. Most of their lives, these family businesses have been going from door to door seeking capital themselves. They know the value of money and don’t part with it easily. They seek the kind of assurances that they had to give their lenders.
No credible fund will return their calls or entertain them. The way to start is to engage with the fund managers as equals. If the fund managers like them, over a few months or years- they will invite them to invest either in their funds or as co investors in their deals. Most probably the latter.
Of course there are hundreds of funds where the fund managers have no clue whatsoever about the business. Some may have lost their jobs and think of a fund as a potential employer with no real accountability really. Others were analysts or interns in larger funds and think that they know investing. Yet others have nothing better options and think this is a “status role”.
On an average, I get one call a day from a “family offices” wanting all papers and a presentation. I usually revert saying that we only meet the principals – and can meet them when in the same city. The objective of meeting them is not to take their money but to get their insights and see if they can help create deals. Often it works out well and after a year or two of interaction, one can do something together. In most cases, I have got them to set up an aif and we have become investors in their aif rather than the other way around.
Finally after doing this for twenty years – the iit groups have the largest fund of funds. About 25x the size of sidbi’s fund of funds. These portfolio funds with family offices as sponsors are all doing well. Some of them have become fund of funds themselves.
But it is a long journey. Nothing happens overnight. Everything takes a few years. Good plays take a decade or more to get right. Remember the original Digital India Fund and Make in India Fund date back to before the govt announced these two initiatives.
