Family Offices – A Boost for the Start Up Eco-System

According to the latest data released by the World Bank, India’s GDP is expected to reach USD 5 trillion by 2025. After taking 60 years to reach the USD 1 trillion mark, India added the next trillion in just seven years. As per the latest IMF forecasts, India’s real GDP will grow at 7.6 % in 2016-17 and 2017-18 which is the highest among the major economies.

According to the Forbes global billionaires list for 2017, India is now home to 101 billionaires. It is estimated that around Rs 22 lakh crores (USD 343 bn) wealth consisting of personal assets as well as business net worth will pass down from one generation to the next over the next 20 years. The next generation, now in the age bracket of 30 to 45 years, has been educated abroad, has increased awareness, greater vision and a global perspective given their exposure to international practices. Gen next is looking at new and innovative options for wealth preservation and growth in the alternative assets space on the back of an evolving venture capital and private equity ecosystem which is fueling the growth of single and multi-family offices in India.

Start- up investing is the latest trend among the next generation and many family offices are looking at angel investment, seed investment and so on to participate in the start-up ecosystem. The young entrepreneurial Burman family members are creating an empire outside Dabur by investing in new ideas and businesses. The family office of Ajay Piramal is known as one of the savviest value investors in the venture capital circuit with his son and son-in-law both actively involved in investing in early stage companies. Sunil Munjal’s family office has invested in a host of startups, ecommerce ventures and social impact companies and funds. Analjit Singh has set up Max Ventures and Industries Ltd. which participates in early and growth stage investing. Daughters of billionaire Rana Kapoor have also set up The Three Sisters family office to incubate and fund new businesses.

The first-generation self-made billionaires are also betting big on the world of startups including technocrats like Google India chief Rajan Anandan, former Infosys CXOs –NR Narayanmurthy, Kris Gopalakrishnan and TV Mohandas Pai, Further, first generation entrepreneurs are increasingly backing start-ups such as Anand Ladsariya, a first-generation entrepreneur who set up Everest Flavours has invested in over 35 startups across various verticals. Promoters of e-commerce unicorns such as Vijay Shekhar Sharma, Sachin and Binny Bansal, Sanjeev Bhikchandani, Kunal Shah and Sandeep Tandon are re-investing their gains into new ideas and companies.

Apart from making strategic investments in startups that offer financial and marketing synergies to their existing businesses, family offices, technocrats and entrepreneurs are interested in identifying companies that are disrupting operating models across industries and sectors. For the new generation with an established business platform, this is an opportunity to diversify their business, re-invent their business models, product portfolio, distribution and marketing processes and be an integral part of the new economy.

According to a report by Innoven capital, angel investment in Indian startups hit a five year high in the year ended March 2016 and stood at Rs 113.6 crores across 69 deals, a rise of about 62 % in deal value and 47 % in deal volume from the previous financial year. Whereas, on the deal flow side, driven by factors such as a burgeoning domestic demand, evolving technology space and availability of capital, the growth in the number of startups has been revolutionary. It is projected that by 2020, there will be 11,500 from 3,100 start ups in 2014.

With these rapid developments across the family office platform, entrepreneurs now have access to a pool of capital that brings both operational and financial benefits along with potential guidance, mentorship, a tag of acceptability, credibility and visibility, all much needed at their critical nascent stage of business. Further, these family offices have their long-term interests aligned with such entrepreneurs which allows for them to take decisions in the best interest of the business and not skewed to a short-term benefit driving investor returns.

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