Family office earns 'above average' returns from venture bets

Sattva Ventures’ success with venture capital investments has boosted its confidence to consider becoming a multi-family office and offer other families access to lucrative investments.

“We have already completed several investments that have generated an above average rate of return and will eventually become a multi-family office fund giving Indian investors access to lucrative early-stage opportunities, while connecting founders with strategic partners who will bring value beyond capital,” Adrija Agarwal, founder of Sattva Ventures, told AsianInvestor.

Agarwal represents the second generation of the Sattva Group, which is headquartered in Bangalore, India.

One India-based investment advisor that AsianInvestor spoke to said that the internal rate of return in venture capital currently ranges anywhere between 15% to 20% and above.

Venture capital is growing in popularity among Indian family offices, especially among second-generation executives, as they seek to preserve and grow family wealth and diversify their assets.

Apart from Sattva, another Indian family office known for making strategic venture capital bets is Sharrp Ventures, the family office of the founder of Marico Industries, which has several consumer brands in its stable.

PATIENT CAPITAL

Agarwal views Sattva Ventures as a venture fund that combines “the patient capital of a family office with the business support of a strategic partner.”

The family invests directly and via external funds, although it leans more towards the former approach.

Some of the funds it has invested in include Fireside Ventures, Trifecta Capital and Nueva Capital.

Investments in its private market portfolio currently include jobs platform WorkIndia, wealth management firm InCred, and healthcare brand Ayu Health.

Agarwal said the family office follows a certain set of basic principles while investing, which serve as inputs to its decisions to back young firms or startups.

“On top of our list are good unit economics, which make sure that the companies we´re looking to invest in are not just profitable, but also efficient and scalable,” she said.

"Our 'founder ++' criterion considers entrepreneurs who have vision and ability to keep adjusting to the challenges that arise during a company's growth.

"Scalability is a vital characteristic, targeting companies that can grow and adjust to different conditions and evolve with the changing customer requirements.

“In addition, we look for strong product-market fit, thus investing in companies that provide a solution for a specific market need in a sustained manner.”

VENTURE CAPITAL INTEREST

India’s next generation of family offices are moving away from solely family-managed wealth to hiring external professionals for investment management, legal advice, and governance.

The investment focus is also moving from real estate and gold towards early-stage startups, private equity, and international assets, according to some recent surveys.

“They are shifting from traditional investments to strategic risk mitigation and exploring opportunities in emerging markets.

Among Indian family offices, fintech is a key attraction that raised a total funding of $853.6 million in 2023,” a PwC report on Indian family offices noted released in June.

VC investment in India rose considerably between in the April to June quarter — to $4 billion from $2.9 billion, KPMG’s Q2’2024 Venture Pulse Report-Asia said.

“VC investors in India focused on more traditional sectors for investment, including fintech, electric vehicles, and consumer technologies.

“Unlike many other jurisdictions where investment in the consumer-focused technology space has dried up dramatically, India’s population and demographics has kept investment in the space relatively resilient," the report said.

Several high-profile startups have debuted on the stock exchange in recent years.

Image credit: Shutterstock

FILLING THE GAPS

There are key considerations that investors in the venture capital space must take into account because these are not quick and easy investments.

“Firstly, start-ups at this stage need a high level of support from their investors such as industry connections, legal support or even business advice. So they prefer strategic capital over 'dead' money,” said Agarwal.

Limited fund durations also pose conflicts of interest for venture capitalists.

“Portfolio companies are pressured to raise a round or simply show growth because of fund exit timelines. This is not the case with family office money which has no such restrictions,” she noted.

Thirdly, opportunities in the start-up world are closely guarded secrets, she noted.

“Access is limited to those within the ecosystem and often filled by foreign funds. Indian families lack the bandwidth to source and vet the ventures and receive these opportunities at a much later stage - often pre-IPO with limited upside,” she said.

Sattva Ventures was created to tide over these gaps by being an early-stage fund built on the fundamentals to offer portfolio companies support beyond capital, added Agarwal.