Owing to the recent startup boom in India, the investment ecosystem has witnessed the rise of a new set of investors – Family Offices & UHNIs (Ultra High Net Worth Individuals). Flush with cash, Indian family offices that traditionally invested only in equity, debt funds, and real estate are now starting to see startups as a valuable and new asset class. According to a 2018 Edelweiss & Campden Report, the family office space in India is still quite nascent with only 45 formal family office structures but this number is likely to rise by 2025. Traditionally, family offices were investing in private equity by taking LP positions but some of them today are investing in startups directly.
In an episode of CNBC TV18’s Young Turks with Managing Editor Shereen Bhan addressed the issue of the future of family offices and UHNIs in India and their role in the startup ecosystem with Gopal Srinivasan, Chairman of TVS Capital Funds, Nimesh Kampani, President of LetsVenture Plus, Rahul Chandra from Arkam Ventures, KC Ganesh from the Family Office of Kris Gopalakrishnan, and Arihant Patni of Patni Family Office.
Democratizing access to startups for family offices
Gopal Srinivasan of TVS Capital says, “In India, INR 40-50,000 cr is channeled into alternate investment funds annually. 50% of our money comes from family offices.” And today direct investment in startups and VC/PE funds makes up a good part of this “alternate investment” thesis. But the most critical pain point for family offices who are savvy public market players is the lack of transparency and “closed” access to private markets, especially tech startups. “The biggest issue for family offices has been accessing the right deals at the right ticket size. A concern is that VCs have moved lower down the chain and squeezed out space for others to participate. We are looking forward to democratizing this access for family offices by providing them unique opportunities to write cheques in bridge rounds of high growth companies; thus getting good value at the right price” says Nimesh Kampani of LetsVenture Plus.
DNA of entrepreneurship still ripe in family offices
Arihant Patni of the Patni Family Office believes that family offices are still evolving in India and are yet to find their sweet spot. He says, “To date, we have invested in companies just from a passion perspective. The hardest challenge is to say no to good opportunities. We invest alongside the founders, take active board roles, and help across the business.” He continues, “We are seeing venture as an asset class & startups as a great investment idea. We can now look to invest with long term patient capital”.
This is reflective of what Nimesh has been observing on the LetsVenture Plus platform as well – “A younger generation of family offices is entering the business with higher risk appetite and global experience. Interest from family offices is going beyond participating as just mentors or running accelerator programmes”.
The COVID-19 impact
But is now the right time to get into startups? With the trailing impact of COVID19 on the economy, the startup and VC ecosystem has not been unaffected? KC Ganesh from the family office of Infosys co-founder, Kris Gopalakrishnan says, “Our portfolio is impacted by 15-20% due to COVID-19. We believe that we will emerge out of this into the positive in the 12-18 months. Our investments are long term and patient-capital. But we see that the lack of data will be a big issue for the next 15-18 months. Hence, we will be careful about investing. We are working closely with the startups to come out of the crisis.”
Mr. Srinivasan adds that while startup businesses have taken a hit this has not led to a tempering of valuations just yet. “In the private space in India, we have had some great companies but they were always overpriced. In September – October, we might see the bubble of the past burst. Some good companies will raise funds at fair value after the bubble bursts. Right now, life is in slow motion due to #COVID19,” says Srinivasan
Arihant believes the real silver lining right now is that he is able to sit now with founders and have “real conversations” with entrepreneurs instead of playing the valuation game. “We are positive on investing in ed-tech, health tech, financial, and analytics services companies,” says Arihant.
Rahul Chandra who co-founded one of India’s first VC funds, Helion back in 2006, is now back with his new fund Arkam Ventures which aims to fund businesses servicing Middle India which has so far been a space ignored by VCs. “Startups today at the Series C stage are under a lot of pressure than before, access to cheques above $25 M is scarce right now and those companies are at a high burn rate so the situation is quite grim. Arkam will invest at the Series A and B stage and there we see opportunities because founders are no longer being chased by investors; it’s not about the highest bidder winning. That irrational behavior is now behind us. Valuations at Series B stages are down 30-40%,” says Rahul.
This was a point of view Nimesh concurred with especially for “COVID positive” sectors like ed-tech, med-tech, online gaming where family offices have opportunities to participate in reasonably priced bridge rounds alongside VCs and there are such deals live on the LetsVenture Pus platform presently.
Click here to get in touch with us and know more about LetsVenture Plus and the opportunities available on the platform presently.