CAN SINGAPOREA­N STAR­TUPS CASH IN ON ASIA’S GROW­ING FAM­ILY OF­FICE SEG­MENT?

Singapore Business Review - - FIRST -

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

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