Indian family offices’ direct investments in startups constituted a larger share than their exposure to venture capital (VC) and private equity (PE) funds. This trend is expected to become more pronounced in the coming years, according to a report by trica, an entity of investment platform Lets Venture.
The private market portfolio of Indian family offices comprised direct startup investments at 47%, exposure to VC/PE funds at 32%, and exposure to venture debt funds at 11%, according to the first edition of trica's Private Market Monitor report, conducted in partnership with consulting firm EY and law firm AZB Partners revealed.
The report showed that direct startup investments will remain on the top of the radar of Indian family offices in the next three to five years, at par with investments in Indian public market equities. The report said that 75% of the family offices see direct startups and the Indian market equity investments as the highest conviction opportunities - best high-performance bets - for the next three to five years. In comparison, 56% of family offices see investment in VC/PE funds as the highest conviction opportunities, followed by investments in developed market equities (39%), real estate (25%), emerging market equities (22%) and commodities (5%).
"The inclination of family offices to opt for direct startup investments is a sign of increased acceptance of the asset class given more liquidity, access and transparency, reflecting well on the contribution of platforms like Lets Venture and trica that are democratising access and eliminating information arbitrage," said Nimesh Kampani, Co-founder and CEO, trica, in the report.
The report noted that private market investments remain the alternative investment of choice with allocations to startups and VC funds comprising 18% of the overall pie. This compares with 15% allocation to other alternatives, such as real estate and infrastructure, 20% to fixed income and 36% to listed equities. It added that more than 40% of the family offices have doubled their allocation to private markets in the past five years.
While investing in startups, 50% of the family offices preferred to invest at the seed to Series A stage, and 40% preferred late to pre-IPO transactions. It added that 25% of the family offices preferred to have a well-distributed portfolio across stages.
The report also said that 36% of the family offices are optimistic about exits, while 32% are neutral and 28% are concerned about the exit scenario.
In terms of sectoral choice, fintech led the pack with 82% of the family offices backing the space. This was followed by enterprise tech (71%), consumer tech (68%), healthcare (50%), agritech (35%), and edtech (42%).
The report is based on an online survey completed by 103 family offices and ultra-high net worth individuals (UHNIs), and interviews. These were conducted between July and October 2021.