Family office founder: ‘Be wary of cocktail conversations that turn into strategy’
Beware of succumbing to buzzwords and the flavour-of-the-month-deals if you want to succeed at investing for the long term.
It's also important to know your strengths and how you can leverage those while making investments.
That's the advice from one of India's well-known family office executives - Rishabh Mariwala, a second-generation Indian family business entrepreneur and founder and managing partner of Sharrp Ventures - the Mariwala Family Office.
“You have to be wary of having cocktail conversations that become a strategy. You might find yourself reading about a peer that earned some astronomical amount investing in something and it’s hard not to have FOMO (fear of missing out),” Mariwala told AsianInvestor.
“Just jumping at an opportunity because it’s being talked about so much is not a good idea – the family office needs to be clear on what its competency is."
The office manages the proprietary capital of the Harsh Mariwala family, founder of Marico, one of India's most well-respected consumer goods companies.
Marico, a listed company, is best known for its Parachute coconut oil and Saffola refined oil brands. Its stock market capitalisation was equivalent to about $9.6 billion in early June.
While Sharrp Ventures invests long-term patient capital and supports portfolio companies through multiple stages of growth and evolution, the family office holds a bulk of its investments in public markets.
While Mariwala is not operationally involved with Marico any more, he remains strategically involved, he said.
"It gives me the time and energy to go out and scout for business ideas and opportunities. If you don’t spend enough time doing due diligence, the fact is you can get bruised pretty badly and lose a lot of money."
VENTURE CAPITAL EXPERTISE
Mariwala himself is focused on venture capital investing and fostering entrepreneurship.
The Mumbai-based executive noted that for family offices to make the right investments, they need to be highly aware of their competencies and equally, have the right talent on board, along with a culture that aligns with both the family and the team.
“80% of my time goes into understanding the venture capital space,” he added. “As principal, we have a clear strategy of what we focus on and what we don’t.”
With a background in consumer goods, the family office sees its expertise in consumer related fields.
“We don’t do anything deep tech or artificial intelligence or fintech. That’s because we don’t understand it and therefore, believe, we shouldn’t be investing in these areas,” Mariwala said.
Venture capital, of course, is an asset class that promises high returns -- and accompanied high risks.
“You do need a higher threshold of capital if you want to take on venture capital investing – at least 100-250 crore rupees ($11 million to $30 million) to begin with,” Mariwala said.
Family funds have both professionalised and proliferated, with an estimated 10,000 family offices managing trillions of dollars of wealth worldwide, according to a Withers note published in February.
“Founders may feel that their interests align more closely with those of a family or founder's fund than a traditional VC fund, which has its own more rigid schedule and demands,” the note said.
Unlike VC funds, which operate on a set investment cycle, family offices seek to benefit generations to come.
They are not obliged to invest if they believe the market is overvalued; and when they do, they are often more interested in long-term, sustainable growth.
As a family office, we don’t have to raise capital and our capital is patient – we don’t need the money in the next 1-2 years, we plan for the next 10 years,” said Mariwala.
“So, our investments are also not about what makes money in the next 1-2 years, we think in terms of decadal bets. And as family offices, we want to maximise that luxury to its fullest advantage.”
Image credit: Shutterstock
INVESTING STYLE
The family office invests in both venture capital funds as well as makes direct venture bets.
One of its more well-known investments is in Nykaa, an Indian e-commerce company selling beauty, fashion and wellness products. “We invested in 2015 – it was one of our early investments,” said Mariwala, adding the family office has now fully exited that investment.
Other investments – directly or via funds -- include Sleepycat, a mattress and pillow company; personal care brand Mamaearth and caffeinated personal care brand MCaffeine among others.
The family office has seen a 60% plus internal rate of return, according to some reports.
The success or failure of investing bets also largely depends on having the right management information systems in place.
“As a principal, you should be able to see all your investments clearly to make the right decisions,” said Mariwala.
“Without that, the reality is you might have investments in different places and when you put it together, suddenly you realise you have too much cash or that you have too many stocks or too much sector concentration.”
With venture capital investing, due diligence is key as well. Some questions that family offices should ask themselves are: “Do they have the ability to fully understand the deal it wants to do? Has it done enough due diligence? What about the diligence of the founder of the business? How much do you understand the business?” according to Mariwala.
As an integral member of a well-known entrepreneurial family, Mariwala says venture capital holds a special fascination for him.
“You are part of the story of the founders, who are building businesses from the ground up. Of course, risk appetite needs to be high to be a venture capitalist," he added.