Family offices in India: Pioneering startup investments with due diligence

In 2018, the heads of an Indian HNI family convened to debate liquid investments related to their wealth, given that they were a multi-generational family group. The conversation focused on building a legacy while mitigating market risks and eventually culminated in the establishment of their own family office. Similarly, dozens of families in India were embarking on a similar journey, seeking structure and professionalism in managing their fortunes.

Since then, family offices in India have experienced significant expansion. A recent report indicates that the number of family offices has increased 7X in the last six years, rising from 45 in 2018 to almost 300 by 2024. This growth signifies a move toward more organised and professional investment management and succession planning for affluent families.

Sundaram Alternate Assets projects that this momentum will continue, with Assets Under Management (AUM) for Indian family offices expected to grow by 50% in the next three years, from $30 billion in 2024 to an estimated $45 billion by 2027. This trend underscores the increasing influence of family offices as key institutional investors in India’s financial ecosystem.

Complementing this trajectory is the anticipated surge in ultra-high-net-worth individuals (UHNWI’s) in India. Between 2023 and 2028, India is expected to record the fastest growth in UHNWI population globally, as highlighted in Knight Frank’s Wealth Report 2024. The number of UHNWIs in the country is projected to rise by nearly 50%, from 13,263 in 2023 to approximately 19,908 by 2028. This demographic expansion is poised to further fuel the growth of family offices and their investment activities.

Family offices are playing a pivotal role in India’s economic development by channelling capital into high-potential ventures, supporting startups, generating employment, and engaging in philanthropy. While traditionally invested in established sectors, family offices in India are now actively diversifying into emerging and high-impact fields such as semiconductor technology, robotics, space exploration, and renewable energy — aligning their investment philosophy with innovation and future-readiness.

Making such forward-looking investments requires a deep understanding of financial frameworks, business models, industry trends, and the capabilities of founding teams while staying agile in the face of India’s rapidly evolving startup landscape.

A critical part of this process is robust due diligence. Given the high-risk and unstructured nature of early-stage businesses, comprehensive due diligence is essential for family offices to assess the alignment, feasibility, and risk exposure of a startup fund or venture. This involves scrutinising the business for yellow and red flags, validating the management’s vision and values, and ensuring that the expectations of the family offices are aligned with those of the startup's promoters. This reduces the likelihood of future conflicts and enhances the chances of mutual success.

Early-stage investments come with unique challenges, including reputation risks, political exposure, and governance issues. Key corporate governance risks may involve inaccurate financial reporting, undisclosed related-party transactions, exaggerated operational metrics, and hidden regulatory liabilities.

To mitigate such risks, family offices often conduct a multi-dimensional due diligence process that includes integrity, ethics, and governance assessments, operational due diligence, adverse media checks and reputation screening, politically exposed persons (PEP) and sanctions checks, and profiling and background checks of key and senior leadership.

This proactive and holistic approach not only protects the financial interests of investors but also safeguards them and associated stakeholders from reputation harm or financial loss due to failed investments. In an environment where transparent and reliable data on startups can be limited, thorough pre-investment due diligence acts as a critical safety net, offering clarity and confidence.

As India accelerates its journey toward becoming a $5 trillion economy, family offices are emerging as more than just custodians of wealth. They are increasingly becoming visionary catalysts for innovation, entrepreneurship, and inclusive economic growth, and a core part of shaping the future of Indian enterprise.

Deepak Bhawnani, the Founder of Alea Consulting.