PwC Report: Family Offices Shaping Startup Investments

Family offices have become increasingly prominent in the startup investment landscape. These investors are actively participating in the growth of innovative companies, accounting for nearly one-third of global capital invested in startups. 

PwC recently released a report looking at the evolving landscape of family office investments in startups and their impact on the global economy. 

To compile this report, PwC combined its proprietary database of 6,530 family offices worldwide and researched investments made between January 2012 and December 2022. Additional information was gathered from third-party sources, including venture capital databases, news monitoring, industry reports, and publicly available data.

In this blog, we’ll delve into the report and what it means for the future of the startup ecosystem. 

Investment Trends: Rising and Retreating

After experiencing steady growth since 2012 and reaching its peak in 2021, family offices’ investments in startups witnessed a sharp decline in 2022. Both the number of deals and the capital invested decreased significantly. In 2022, family offices invested approximately 45% less capital, totaling $161.7 billion, while the number of investments decreased by over 22% to 4,736.

This decline can be attributed to the prevailing uncertainties in the global economy and markets during 2022, including the ongoing COVID-19 pandemic and geopolitical tensions. Family offices exercised caution, opting for smaller and medium-sized deals rather than larger investments. They were more inclined to collaborate with other investors, spreading the risk and increasing the likelihood of successful outcomes.

Additionally, they shifted their investment focus from early-stage startups to later-stage companies starting in 2019. This risk-averse approach continued in 2022, reflecting their cautious stance amidst uncertainty. By investing in later-stage startups, family offices aim to mitigate risk and capitalize on more mature companies with proven business models and revenue streams.

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Collaborative Investments: Club Deals Dominate

Family offices have increasingly engaged in collaborative investments known as “club deals” in recent years. These deals involve multiple family offices pooling their resources and expertise to invest in startups collectively. Around 90% of family office-backed startup investments have been undertaken jointly with other investors. While the proportion of club deals reached a record high of 92% in 2021, it slightly receded to 89% in 2022.

Club deals provide several advantages. They allow for risk-sharing, enhance due diligence capabilities, and facilitate knowledge sharing among investors. Furthermore, by participating in club deals, family offices gain access to a broader network of co-investors. This expands their deal flow and opening new avenues for future investments.

Sector Focus: Tech Dominates, but Diversification Expanding

Family office investments accounted for 10.1% of all startup investments in terms of deal count and a significant 32.5% in terms of capital invested.

Technology remains the most attractive sector for them, accounting for 34.9% of the total capital invested in 2022. However, these investors are diversifying their portfolios by investing in sectors such as healthcare, consumer goods, and financial services.

The COVID-19 pandemic has undoubtedly influenced investment preferences, with healthcare witnessing increased attention. Family offices recognize the potential for disruption and innovation in healthcare and are actively seeking investment opportunities in digital health, telemedicine, genomics, and biotech.

Looking Ahead

Family offices continue to be key players in the startup investment landscape, actively shaping the future by supporting innovative companies with patient capital. While the uncertainties of 2022 led to a decline in investments, they demonstrated resilience by adapting their strategies and focusing on collaborative investments and later-stage startups.

Their influence extends beyond capital investment, as these investors also contribute valuable industry expertise, networks, and guidance to startups. As the startup ecosystem evolves, family offices are likely to expand their portfolios, diversifying into new sectors and continuing to fuel the growth of groundbreaking companies.

To read more about these findings, visit PwC’s latest Family Office Deals Study report.

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