CAN SINGAPOREAN STARTUPS CASH IN ON ASIA’S GROWING FAMILY OFFICE SEGMENT?
The rapid rise of millennial magnates in Asia with larger risk appetites and a propensity towards private equity investment is a match made in heaven for the region’s cash-short startups seeking the necessary financing fuel to unlock their next stage of growth. Reuters estimates that there are roughly 500 family offices in Asia that work discreetly to manage a family’s private wealth affairs, including investment, succession planning, philanthropy and taxation. Raffles Family Office, which has operations in Singapore and Hong Kong, is one such player that has chosen to allocate a small portion of its $1.5b AUM into the startup space, with particular inclination towards healthcare tech, fintech and cybersecurity.
“There is definitely huge momentum into the startup space as part of the wealth management strategy,” Kendrick Lee, managing partner at Raffles Family Office, said. “We too acknowledge that such investments into startups could return more than 100% of the entire portfolio; therefore, we cannot ignore such an investment.”
One such startup that benefitted from this growing trend is Singapore-based event platform Delegate, which successfully raised US$1M for its pre-series A round from an undisclosed family office earlier this year. “We chose to raise funds from a family office as the quantum that we’re looking to raise was deemed too small by some VCS - those who were looking at investing at Series A and above; or too large for VCS that invest at seed stage,” its founder, Jacqueline Ye said.
A new generation of millionaires
Industry players attribute the growing prominence of such investments to the ongoing transition of wealth to a generation that has displayed a greater willingness and risk appetite beyond high-dividend stocks and fixed-income products. “The first generation of one of our clients is very traditional since they made their money from real estate. The second generation, being in the tech era and environment, understands the need to be relevant in the startup space. Immediately, the family carved out a small budget for the second generation to invest in startups,” said Lee.
The potential of startups offering significant returns was not lost on the broader industry as law firm Wongpartnership observed the spike in demand for advisory services in the startup space and launched a startup/venture capital practise in 2018 to consolidate its expertise in the area, said Sin Wei Ong, partner and co-head of the newly created segment.
“Family offices are increasingly viewing startups as having the potential for outsized returns. The key drivers for investments into start-ups tend to be the younger generation of the family, who better understand the start-up mentality and want to diversify beyond the usual target businesses,” he noted.
Unlike traditional VCS which subscribe to the usual 2/20 model, family offices could offer startups a longer timeframe to work around as they do not have to worry about a fund life, divestment horizon and required returns, e27 said in a report. Depending on the terms of the deal, family offices can opt to exit in a year or five to ten years which may differ with the priorities of VC funds that have to maintain steady cashflow.
Part of the reason that family offices could afford to be a more patient source of capital lies in the fact that startups are not the only possible goldmines for the wealth managers of the region’s super-rich. Although alternative investments like real estate, private equity funds, hedge funds and REITS have been gaining traction, equities, bonds, cash and commodities still form a key part of the investment mix, according to a report from UBS and Campden show.
However, there is no denying that the rapid pace of wealth creation in Asia creates only more opportunities for collaboration between the region’s wealthy families and startups seeking diverse ways to unlock capital, which all works to the benefit of the startup ecosystem. Asia-pacific accounted for 38% of the global millionaire population in 2017, according to the UBS report.
“[T]he comfort of the new tech billionaires or younger scions of traditionally wealthy families with the risks and rewards associated with start-up investing and their willingness to get involved point to this being a long term play,” concluded Kyle Lee, partner and co-head at start-up/venture capital practice at Wongpartnership.
Delegate CEO Jacqueline Ye