Family offices, UHNIs, increase allocation into startup investments, says report

A report from trica says majority of family offices and UHNIs in the country have highest conviction about startup investment in next three to five years.
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Indian startups will continue to see increased traction from the domestic family offices and ultra high networth individuals (UHNIs) who are allocating higher share of their investible capital into this segment, according to a report.

The Private Market Monitor report by Trica in partnership with AZB & Partners and EY said that over 40 percent family offices have doubled their allocation to private markets in the past five years and large cheque writers are preferring to have a direct participation in a startup’s capitalisation table. This report is a survey of over 100 family offices and UHNIs.

“Family offices in India have evolved over time and they want to make a lot of investments into startups now,” said Nimesh Kampani, co-founder & CEO of trica.

Source: The Private Market Monitor report by trica

The report finds that the changing face of the startup ecosystem with the spate of initial public offerings and acquisitions has created a new category of first generation UHNIs that are proactively exploring the family office route to manage their wealth.

Family offices have traditionally parked their investible capital into segments such as listed equities, real estate, gold, fixed income instruments, etc.

The report states that private market investments remain the alternative investment of choice with allocations to startups and VC funds comprising 18 percent of the overall pie.

Nimesh said, “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.”

The report noted that majority of family offices and UHNIs preferred to get in early into startup investment with 50 percent interested in seed to Series A stage, 40 percent late to pre-IPO transactions, while 25 percent of them sought a distributed portfolio across stages.

The criteria taken by these investors while making their investments into startups were quality of top management, high growth market opportunity and the presence of a strong business moat.

The report noted that this class of investors are generally not swayed by marquee co-investors or follow-on investors, valuations and near term exit opportunities while writing direct cheques into a startup.

Source: The Private Market Monitor report by trica

According to Nimesh, this category of investors is patient capital and the survey noted that 82 percent of the family chose non-linear returns as the top reason for participating in startup investments.

The top priority segments of startup investment for these investors were fintech and enterprise tech followed by consumer tech, healthcare, agritech, and edtech.

Interestingly, the report noted that when asked about the highest conviction opportunities over the next 3-5 year period, direct startup investments come out right at the top alongside Indian public market equities. The on-par conviction for the two reflects the optimism investors have about the relatively newer startup investment asset class, it said.

Trica is a LetsVenture company that creates software products for equity management and transactions.

Edited by Megha Reddy