Family offices accelerate investments in startups

Family offices are all set to accelerate their investments in startups this year with tech-based startups particularly being high in demand.

Sir Anthony Ritossa, chairman, Ritossa Family Office, said: “Global family offices increasingly seek to identify and source promising startups for investment in the Mena region, especially in the UAE, which is widely respected as a startup hub and destination of choice for talented international entrepreneurs. As a result, many substantial families of wealth have a keen appetite for private deals and startup co-investment in the UAE and throughout the Mena region.”

The UAE is committed to helping support small- to-medium business entrepreneurs and welcomes public-private partnerships.

“Indeed, the UAE works hard to attract leading startups and offers a superior quality of life with solid infrastructure, healthcare systems, sustainability, safety and resiliency,” added Ritossa.

The Ministry of Economy is instrumental and supports Global Family Office Investment Summits, which has resulted in many top tier global startups companies opening new headquarters in the region.

“We’ve had tremendous outcomes and experiences as a result. These government programmes and incentives position our region for a quick recovery from the pandemic and make it a desirable destination in which to reside and work. The Ministry of Economy definitely leads the way and contributes to the UAE’s vibrant and fast-growing startup industry. I believe that in both the short-and long-term our region will continue to expand as a burgeoning epicentre for startups.” said Ritossa.

The popular research think-tank Magnitt has 17 GCC based Family offices on its platform, out of which seven of them invested in at least one GCC based startup in 2020.

Popular investment sectors with family offices today include cleantech, fintech, biotech, healthcare, renewable energy and electric vehicles, AI and machine learning, bitcoin and digital assets, biotech, healthcare and medicine, online education and shopping, alternative energy, food safety, venture capital, real estate and infrastructure, arts and culture, and private debt.

The latest Family Business Survey from PWC clearly illustrates the extraordinary resilience and agility of family businesses in the Middle East. While many have been hit hard by the pandemic, they remain optimistic that growth will return in the coming months and years, and are looking forward to the future.

Adnan Zaidi, Middle East Entrepreneurial and Private Business Leader, PwC Middle East. “Our survey shows that family businesses in the Middle East have clear priorities for the next two years. Top of the list is diversification, with 58 per cent planning to expand into new markets or client segments, but digital capabilities will also be the key to success in the future. While many family businesses have historically underinvested in digital, the pandemic has added a new urgency and three quarters — almost 75 per cent — say that digital, technology and innovation initiatives are a key priority.”

Saudi-based Mohammed Alzubi​, managing partner, Nama Ventures — who has more than 60 investments in tech startups and Silicon Valley funds with a portfolio of companies achieving global top 10 unicorn status — endorses the trending family offices actively looking at startup investments.

Alzubi said: “Family offices have become a cornerstone in terms of contribution as investors in Mena based venture capital funds, they represent the majority of our investors at Nama Ventures. The family offices see the value in two folds, it allows them access to proper deal flow and at the same time it gives them co-investments and follow on investment rights. Tech startups are disrupting every single aspect of business. And the family offices have realised staying stagnant and not participating in this new asset would render their businesses irrelevant in five to ten years.”

Alzubi is extremely optimistic about growth of tech startups in the region. “We are living in unprecedented times when it comes to the growth in tech startups in the Mena region. The ecosystem today enjoys government and semi-government support that I would argue is unparalleled globally. At Nama we say we have not started yet, the future is extremely exciting when it comes to technology startups.”

Family offices have grown in sophistication, developing in-house venture investment capabilities over the past decade especially led by next generation family members who wish to be more hands-on with direct investments rather than through managed funds. They tend to add value to each deal with their operational experiences and opens doors to key markets with their connections.

There is also the rise of ‘conscious investors’ within family offices that have traditionally built their wealth in more ‘legacy’ sectors of the economy such as properties, trading, retail, or manufacturing and are now seeking means to diversify their interest by being involved in ‘Impact and ESG’ (Environmental, Social and Governance) investments. Popular verticals for these investments include healthcare and wellness, food and agriculture, energy, and sustainability.

Vijay Tirathrai, managing director of Techstars, said: “ Early-stage venture investments at Seed and Series A rounds, while risky, have delivered strong returns for many family office investors. Driven by historical returns in venture capital coupled with recent record valuations of tech companies and exits, family offices have increasingly allocated capital to venture. Moving away from investing to silos, I encourage family offices to be more collaborative by co-investing with other Family Offices, VC, Accelerators that can benefit from others’ expertise and experience while reducing costs, broadening diversification, and better risk management, among others.”

Family offices globally are growing in number and are becoming more and more selective with the start ups they choose to invest in, however the demand is high for certain sectors like technology, healthcare, AI, and education. “The start ups have to remain competitive in a fast growing market,” said Mohamed Al Banna, group ceo and managing director, Lead Ventures.

“2021 is the year of recovery, the market is starting to climb back up from 2020 and everything is happening quickly, It is the best time for start ups to gear up. Considering the multiple initiatives by our government and leaders (Expo 2020, Mars Mission, the golden visa, citizenship, the peace agreement, etc.) to attract not only investors but creators to this region, startups have all the resources and support from the governments to succeed, they just need to be competitive and adaptable. At Lead, we decided to initiate supporting local start ups by partnering with them to expand our platform and include their complementing services to all our affiliates,” said Al Banna.

Swethal Kumar, CEO and Managing Partner, Startupscale360, said: "Family Offices are now being more active in investing in startups and Venture Capital as LPs. Global trend is that family offices allocate nearly 10-15 per cent to alternative investment, but this number is very low in Middle East. With the growing popularity of startup ecosystem in Middle East, the family offices investments are expected to grow."

— sandhya@khaleejtimes.com