The Growth Of Indian Family Offices’​ Investment In Startups

A homegrown venture capital fund, we started in 2011 with the support and backing of Indian HNIs and Families. The venture asset class was still unknown at the time. Hence, out of every six HNIs/families we pitched to, we’d get one to commit. 

We finally ended up with INR 100 crores and a dream—the Blume Fund 1. This was an era when Indian Business families, CXOs and HNIs wished the startup ecosystem well but didn’t buy into the India startup story.

Therefore, it was not a surprise that out of the $300bn value that was created in the startup ecosystem, only 2-3% was availedby Indian families. In our discussion with Gaurav Deepak, co-founder and CEO of Avendus Capital, we estimated that of the value created in the last decade, roughly 60% has gone to global investors, 15% has gone to global fund managers, 10-12% has gone to Indian entrepreneurs, 5-6% has gone to the employees through ESOPS, 4-5% has gone to local fund managers, and 2-3% has gone to Indian Investors (HNIs/Families). 

While there was a huge creation of wealth, a bulk of the HNIs/families missed out on this investment. In contrast, let’s look at the Indian public markets. This value increased from $1.5 trillion in the last decade to $3 trillion this decade. Each of us has participated in this value that’s been created through mutual funds and direct equities. 

Today, 20-25% of the public markets are owned by FDIs while the rest is owned by Indian families—either as promoted stakes or investors. Given the belief in public markets, however, the private market participation in this investment opportunity was dismal. 

Now, in 2022, much has changed. Irrespective of their backgrounds, people are interested in buying into the Indian tech landscape. Indian families are dedicating a significant part of their wealth to investing in the burgeoning startup ecosystem.

A Tier 3 family has set aside a whopping $100 m from their assets for investments in startups! For those wondering, it’s still not too late to jump on this train. 

However, for a family keeping aside a significant amount ($10mn+), it is important to have clarity on the strategy in place for the use and growth of that wealth and ensure that clear goals are set. A lot of families today have active family offices—Hero and DSP come to mind. 

Early this year, Sheeba D’Mello from Prathithi Investments (family office of Kris Gopalakrishnan, co-founder, Infosys) spoke to us about how the Indian family office has evolved. She said that Gopalakrishnan had been investing in startups since 2014. He made a lot of direct investments in the early years but realized that he needed help in managing these investments. 

At this point, said D’Mello, Gopalakrishnan felt it would be prudent to onboard a professional fund manager. In 2016, he hired D’Mello who had prior fund experience. Over the last six years, they have learnt that it is best to leave early stage investing to funds, as founders at an early stage need a lot of hand-holding and the returns too are not needle moving. Today, when they invest in a fund, they look at such funds as investment partners. 

Assuming each fund becomes a larger piece of the strategy, these are funds they could rely on for in-depth knowledge and also later-stage deals. The direct cheques today are mostly in the growth stage startups. 

Given that there are many investment options today, it is also important for a family to look at diversifying the portfolio. Decisions need to be made on equity/debt and what the distribution should be across stages. The biggest benefit of being a family office is that it is proprietary capital. Therefore, it has more flexibility. Unlike funds, family offices don’t need to define the scope upfront, and also have the flexibility to tweak as the market evolves, so long as it aligns with the family’s objectives. 

In a nutshell, it’s important for the family to have clear objectives—whether that’s financial returns, impact, wealth conservation, or supporting a cause. The clearer the goals, the easier for the professional to ensure that investments are aligned, leading to the eventual success of the family office. 

Click here to read about how individuals can start their investing journey.